Tds under section 195

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Querist : Anonymous

Querist : Anonymous (Querist)

27 May 2015 I HAVE TO PAY FEE FOR ROYALTY TO NRI LIVE IN US OF 311.49 USD.I HAVE DEDUCTED TDS UNDER SECTION 195 @ 25% + EC@3%=25.75.IS MY RATE OF TDS IS CORRECT.I THINK NO SURCHARGE SHALL BE ADDED.WHAT ARE THE REQUIREMENT UNDER SECTION 115A..KINDLY SOLVE MY QUERY.

Querist : Anonymous

Querist : Anonymous (Querist)

28 May 2015 Kindly help me in above query..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Got it! Let me clarify the TDS rate on royalty payments under Section 195, along with the application of Section 115A:

---

### Your situation:

* Payment: Royalty fee to NRI (Non-Resident Indian) residing in the US
* Amount: USD 311.49
* TDS deducted: 25% + 3% EC (Education Cess) = 25.75%
* Question: Is the TDS rate correct? Is surcharge applicable? What about Section 115A?

---

### Key points:

#### 1. **TDS rate on royalty to NRI under Section 195**

* As per **Section 115A** of the Income Tax Act, the tax on royalty payments to non-residents (including NRIs) is at a **flat rate of 10%** (plus applicable cess and surcharge) **without allowing any deduction or expenses**.

* However, this is subject to the provisions of the **DTAA (Double Taxation Avoidance Agreement)** between India and the US.

#### 2. **DTAA between India and USA**

* The DTAA generally prescribes **a maximum of 10% tax on royalty payments** (subject to certain conditions).
* If the recipient claims benefits under the treaty, the TDS should be deducted at 10% + cess, no surcharge.

#### 3. **Surcharge and Cess**

* For payments under Section 115A, **surcharge is generally not applicable** if the tax is deducted at the treaty rate.
* **Education Cess (EC) and Secondary and Higher Education Cess (SHEC)** of 4% (2% + 1% EC + 1% SHEC) is applicable on the tax amount deducted.

---

### So, your deduction:

| Component | Correct Rate | Your Deduction |
| -------------- | ---------------------- | ------------------------- |
| TDS on Royalty | 10% (under 115A) | 25% (Incorrect, too high) |
| Education Cess | 4% on TDS | 3% (Incorrect) |
| Surcharge | Generally no surcharge | No surcharge applied |

---

### **Summary:**

* Your TDS @ 25% is **too high** for royalty payment to NRI under Section 195 + 115A.
* Correct TDS rate should be **10% on gross royalty** + 4% cess on TDS amount = effective around **10.4%**.
* No surcharge on this amount if deducting under treaty rate.
* You may consider revising and refunding the excess TDS deducted (if possible).

---

### Recommendations:

* Verify if the payee has provided a **Tax Residency Certificate (TRC)** for claiming DTAA benefits.
* If yes, deduct TDS at **10% + cess**.
* If no TRC or DTAA benefit claimed, **25% + cess** may apply as per domestic law.
* File correct **Form 15CA/15CB** accordingly.

---

If you want, I can help you draft a note or calculation for refund of excess TDS or correct TDS deduction. Would you like that?

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