Overview of Section 195
Section 195 deals with tax deduction for payments to non-residents. This section applies to all payments like interest, dividends, royalty fees.
Compliance and Process for TDS under Section 195
The payer must deduct tax at prescribed rates before making payments to a non-resident. After deduction, the payer must deposit the tax with the Indian government within the specified time and file a TDS return providing payment details.
Requirements and Exemptions under Section 195
- TAN and Documentation: Get a TAN, mention TDS provisions in the agreement with the NRI, and deposit the deducted TDS by the 7th of the next month. The payer also needs to obtain a TAN before making payments. Provide form 15CB from a Chartered Accountant and file form 15CA online. The remitter must provide the TAN for tax payment.
- Exemptions: There are exemptions and relief available under Section 195. For example, businesses can apply for lower TDS rates. In addition, payments made for importing goods may be exempt from TDS under Section 195.
Consequences of Non-Compliance with Section 195
In case the tax is not deducted at the source, it will lead to disallowance of the particular expense under section 40(a)(i). In case tax has been deducted but not paid within the time limits, interest @ 1.5% per month or part of the month will be levied from the date of the deduction to the date of deposit.
Additional Information on Section 195
According to Section 195 of the Income Tax Act, if you are paying a certain amount to an NRI, then you have to make a tax deduction on the same. The person making the payment is generally required to deduct tax at the rates specified in the Income Tax Act or under the Double Taxation Avoidance Agreements (DTAA), whichever is more beneficial to the non-resident.
Conclusion
Section 195 of the Income Tax Act is a crucial provision that imposes an obligation on the payer to deduct TDS before making any payment to a non-resident. Compliance with this section is essential to avoid legal repercussions and unnecessary TDS deductions.