Tds u/s 195

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2014 Dear Sir/Madam

X(Indian) Co., is Paying Rs.700 to Y(Foreign) Co.,My Queries are
i)X has to deduct any TDS or Not?
ii) what is the Limit for Deducting TDS U/S 195

B.COM, ACA, DISA Namrata

B.COM, ACA, DISA Namrata (Expert)
Follow

28 June 2014 Though section 195 deals with deduction of tax in case of non residents but virtually every section and provision of the act and article of DTAA has to be considered and applied in the context to determine the taxability, taxable amount and the applicable rate.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2014 DTAA agreement is not there, can X Co.deduct any Tds Under Income Tax Act 1961 on that Rs.700

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

02 August 2025 Here's a clear answer to your queries regarding **TDS u/s 195** on payment of Rs. 700 by an Indian company (X) to a foreign company (Y) when **no DTAA applies**:

---

### 1) **Whether X has to deduct TDS u/s 195?**

* **Section 195 applies on payments to non-residents for income which is "accrued or arises or is deemed to accrue or arise in India."**
* If the payment to the foreign company is for services or any income that arises in India, then **yes, X must deduct TDS under section 195**.
* The fact that the amount is only Rs. 700 does **not exempt** X from deducting TDS if the payment is taxable in India.

---

### 2) **Is there a threshold or limit for deducting TDS under section 195?**

* **No threshold limit** is specified under section 195 for deduction of tax.
* TDS is **required on any sum payable to a non-resident**, no matter how small the amount, if the payment is taxable in India.
* Hence, even Rs. 700 is subject to TDS if it is taxable income.

---

### 3) **If no DTAA applies, what TDS rate applies?**

* In absence of DTAA and if the foreign company does not have a Permanent Establishment (PE) in India, **the TDS rate is as per Income Tax Act**.
* Generally, for fees or payments to non-residents, the applicable rate under section 115A can be 30% (plus applicable surcharge and cess).
* However, actual rate depends on the nature of income (e.g., royalties, fees for technical services, etc.).

---

### **Summary:**

| Query | Answer |
| --------------------------------------------------------- | --------------------------------------------------------------------------------------- |
| Does X have to deduct TDS on Rs.700 paid to foreign co.? | Yes, if the payment is taxable in India under Section 195. No exemption for low amount. |
| Is there any minimum threshold for TDS under section 195? | No, TDS applies irrespective of amount. |
| What rate applies if no DTAA? | Rate as per Income Tax Act, generally 30% + surcharge/cess |

---

### Additional note:

If the income **does not accrue or arise in India**, then no TDS is required. Also, if the payment is **not income (e.g. capital repayment, refund etc.)**, then no TDS.

---

If you want, I can help with examples or draft communication for your company regarding this. Let me know!

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now