Budget 2023-24: Tax treaty relief at the time of TDS u/s 196A

Last updated: 01 February 2023

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The Indian government has proposed an amendment to Section 196A of the Income Tax Act, effective from April 1, 2023. This change aims to provide relief to non-residents by allowing tax treaty benefits to be applied at the time of Tax Deducted at Source (TDS). Previously, TDS on certain income for non-residents was fixed at 20%. Now, if a tax treaty offers a lower rate, TDS will be deducted at that reduced rate, provided the non-resident provides a tax residency certificate.

Section 196A of the Act provides for TDS on payment of certain income to a non-resident (not being a company) or to a foreign company, at the rate of 20%. The income is required to be in respect of units of a Mutual Fund specified under clause (23D) of section 10 of the Act or from the specified company referred to in the Explanation to clause (35) of section 10 of the Act. 2. Representations have been received requesting that the benefit of tax treaty may be considered at the time of TDS so

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FAQ :

Section 196A of the Act deals with Tax Deducted at Source (TDS) on payments of certain income to non-residents (excluding companies) or foreign companies, at a rate of 20%.

A new proviso is proposed to be inserted into sub-section (1) of Section 196A. This will allow the benefit of tax treaties to be considered at the time of TDS.

If a tax treaty provides for a lower TDS rate than the standard 20%, TDS will now be deducted at that lower treaty rate.

The non-resident must furnish a tax residency certificate as referred to in sub-section (4) of section 90 or sub-section (4) of section 90A of the Act.

This amendment will take effect from 1st April, 2023.

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