Income Tax Rules applicable for NRI’s are slightly different from residents. The Income that a Non-Resident earn abroad is exempted from taxation in India. But if an NRI generates income in India, in the form of interest from deposits, property rent, etc. then it is taxable. This income, earned in India, has a fundamental limit of exemption. This article explains who NonResident is is, Tax and TDS of various kinds of income for NRI, example bank accounts, fixed deposits, mutual funds, stocks, etc. How to use Double Taxation Avoidance Agreement? When should NRI file Income Tax Return?
TDS on Non-Resident – Section 195
TDS (Tax Deducted at Source) is the first way for collection of any taxes. Tax Deducted at Source is an important tax collection of taxation method. TDS varies based on the nature of the payment and transaction by different sections, such as Section 194A, 194B, 194C, 194I, etc. Among all TDS sections, Section 195 is the important section which covers the TDS on Non-Resident payments. The business boundaries are not restricted to one country, and it spread over all over the world. Accordingly taxation is also differing. In India, the TDS on NRI-[Section 195] is the unique section to identify the tax rates and deductions on our business transaction with Non-Resident day to day basis.
TDS Rates Under Section 195 – Non-Resident TDS Rates
TDS rates applicable for Non-Resident citizens are mentioned below. Let us take a look at The payment of Other Sum to Non-Resident.
|S.no||TDS Applicability||TDS Rates|
|1.||Income in respect of investment made by an NRI Citizen.||20%|
|2.||Income by way of Long Term capital gains referred to in Section 115E in a case of an NRI Citizen.||10%|
|3.||Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112.||10%|
|4.||Income by way of Short Term capital gains( As per Section 111A).||15%|
|5.||Other income by the way of long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of Section 10].||20%|
|6.||Income from interest payable by Government or an Indian concern on money borrowed or debt incurred by Government in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC).||20%|
|7.||Income from royalty payable by Govt. in pursuance of an agreement made by it with the Indian concern. Royalty is in consideration for the transfer of all rights in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act. As per the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India.||10%|
|8.||Income from fees for technical services payable by Government. (In pursuance of an agreement made by it with the Govt where such agreement is with an Indian concern. The agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is by that policy).||10%|
|9.||Income made from royalty [not being royalty of nature referred to point 7) payable by Govt in pursuance of an agreement made by it with the Govt. and where such agreement is with an Indian concern. The Central Govt approves the agreement or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is by that policy.||10%|
|10||Any other Income.||30%|
Payments & Expenses under Section 195
As per Section 195, payers are covered irrespective of their status like Individual, HUF, and Firm & Corporate, etc. So all the payers are responsible for deducting TDS under Section 195 if they are making payment to NRI. Under this section, any interest (not being interest referred to in Section 194LB/194LC/194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”).
The following payment was not required TDS deduction as per Section 195.
- Interest referred u/s 195LB/LC/LD.
- TDS on Salary payment.
- Dividend payment u/s.115-O.
Above payments are excluded under this section from TDS deduction, and all other payments are covered u/s 195. But payment against import is not coming under the purview of TDS. Salary & dividend payment are specifically excluded from Sec 195. Salary payment to an NRI covered Section 192 is not under Section 195. Dividend not taxable in the hands of recipient since the dividend distribution tax paid by the declaring company.
What is DTAA?
DTAA (Double Taxation Avoidance Agreement) is an agreement between two countries with an objective to avoid taxation on same income in both countries. Presently India has the comprehensive DTAAs with more than 80 countries.
Must Read: DTAA-Double Taxation Avoidance Agreement