TDS Compliances and NRI’s
As we all know, in case Non-Residents have any income in India then they have to file an Income tax return here. This means that if Non-Residents earned any income in India while being outside India then they are also liable for tax deductions. Now, you must be wondering what kind of income NRI earned in India.? As an answer to it, some NRI may still own assets like House Properties, have a bank account in India, Fixed Deposits, etc. As these assets are generating income in India, Section 195 of the Income Tax Act, 1961 make it mandatory to deduct TDS while making payment to NRI.
What is Section 195?
This section deals with the deduction of TDS on payments made to NRI. This applies to any person (Resident or Non-Residents) who is liable to pay any sum to Non-Residents. The payer can be any such as an Individual, HUFs, Companies, etc., This applies to every payment except salaries and interest u/s 194LB, 194LC, and 194LD.
TDS is deducted at the time of credit of income to the account of the Payee or at the time of payment whichever is earlier. Also, there is no threshold limit to deduct taxes on payments made to NRI. However, TDS will not be deducted in case any income is not liable to tax in India.
The rate at which TDS is deducted
| Type of Income | Rates (%) |
| Income from Investments (Interest/Dividend) | 20% |
| Long Term Capital Gain on listed Equity shares or equity oriented Mutual Funds (STT paid) |
10% |
| Long-Term Capital Gain (Others ) | 20% |
| Short Term Capital Gain on listed Equity shares or equity-oriented mutual funds (STT Paid) |
15% |
| Other Incomes | 30% |
| Royalty & Technical Fees | 10% |
If the payee doesn’t have or doesn’t furnish a valid PAN then TDS can be deducted at the higher rates.
Nil or lower TDS Deduction
If Non-Resident doesn’t have any taxable income or only a partial amount is taxable in their hands then they can make applications under Form 15E to the Assessing Officer (AO) for obtaining a lower or nil deduction certificate.
To deduct TDS, the person making payments to Non-Residents must obtain a TAN and deduct taxes as per applicable rates. That tax must be deposited to the Government within time. Further, TDS Returns need to be filed in Form 27Q within due dates, and a TDS certificate shall be issued to Non-Residents in Form 16A.
The payer is also responsible for furnishing information regarding payments to Non-Residents in Form 15CA and Form 15CB irrespective of whether the amount paid is taxable or not. Failure to do this can attract a penalty of Rs. 1 Lakhs.
Non-Compliance with Section 195 impacts the payer only as it’s the responsibility of the payer to deduct the same but as an NRI you must also ensure that necessary compliance is being done on the part of the Payer. Also, tax deducted can be recovered by filing Income tax returns. Even if the income is below taxable limits then also Income Tax returns need to be filed for claim TDS.
Deducting taxes on time eliminates chances of tax evasion and simplifies tax payment for Non-Residents. TDS must be deducted on time to avoid any late fees.
You can also contact us at info@taxreturnwala.com for more clarifications and assistance in filing TDS/Income Tax Returns.
