As per the Income Tax Act, 1961, any earnings generated through business transactions with NRIs come under the purview Income Tax Act and are subject to TDS rate under Section 195. To understand this provision better, entities need to gather more details about this particular section.
Section 195 of Income Tax Act, 1961 is concerned with TDS deductions on payments or income of non-resident Indians. This section enumerates provisions that help avoid double taxation and further focus on tax deductions and accompanying rates applicable to business transactions concerning NRIs. TDS on non-residents is deducted either when crediting the concerned party or on the actual payment date.
These pointers offer valuable insight as to which entities are responsible for paying or remitting payments under Section 195 –
Further, non-resident Indians with chargeable income under Section 195 are deemed as the payee. One must also note that the rate of TDS under Section 195 is determined based on the type of income or payment made.
Here’s how TDS is deducted under this provision –
When it comes to the TDS rate under Section 195, one must note that there is no such threshold limit on deductions. In other words, irrespective of the sum of money, TDS has to be deducted.
Regardless, take a look at this table below to gain valuable information about TDS deductions under Section 195 –
|Type of income||TDS rate|
|Payments, income, or transactions arising from investments||20%|
|Income accrued from long term capital gains||10%|
|Income accrued from capital gains acquired in the long term under Section 115E||10%|
|Other sources of long-term capital gains||20%|
|Earnings generated from capital gains acquired in the short term under the provision of Section 111A||15%|
|Interest to be paid on the sum of money availed in a foreign currency||20%|
|Earnings arising in the form of technical services that are paid either by the government or by an Indian concern||10%|
|Earnings from the royalty that is paid either by and Indian concern or the government||10%|
|Income from royalty arising from sources other than an Indian concern or the government||10%|
|Other income sources||30%|
Besides becoming familiar with TDS rate under Section 195, it is essential to note the implications of delaying or missing out on TDS payments. This will allow entities to avoid penalties and other legal repercussions successfully.
In case individuals fail to meet the provisions of Section 195, they are subject to the following consequences –
Hence, both buyers and NRI sellers should make it a point to take these aspects of Section 195 of Income Tax Act in consideration. This will help to streamline the process of deducting TDS and filing the same seamlessly. They should also understand implications of delaying or defaulting the process of depositing the TDS deduction amount. It will help to account for the same in an informed manner.