TDS Compliance for Non-Residents Under Section 195 of Income Tax Act

A person is treated as a non-resident under the Income-tax Act if they do not meet the residency conditions specified under section 6 of the Income-tax Act, 1961.

Who is a non-resident?

A person is considered a resident if they either stay in India for 182 days or more in a financial year or stay for 60 days or more in that year and at least 365 days in total over the previous four years.

There are special rules for Indian citizens and Persons of Indian Origin (PIOs): if their Indian income exceeds Rs 15 lakh (excluding foreign income), the 60-day limit is replaced with a 120-day rule; however, if they are leaving India for employment abroad or working as ship crew, the 182-day rule applies instead. If none of these conditions are satisfied, the person is treated as a non-resident for that year.

Who has to deduct TDS under Section 195?

Any person, whether an individual, firm, company, HUF, or even a government body, must deduct TDS if they make any payment (other than salary) to a non-resident, as long as the payment is taxable in India.

What is the TDS rate for FY 2025-26 as per the Finance Act?

What are the steps of TDS compliance?

If you’re required to deduct TDS, the first step is to get a Tax Deduction Account Number (TAN),  deduct TDS whenever you make a payment. You must deposit it using challan by the 7th of the next month.

After that, file a TDS return (Form 27Q) every quarter for:

• April-June by 30 July
• July-September by 31 October
• October-December by 31 January
• January-March by 31 May

Once the return is filed, you must issue a TDS certificate (Form 16A) to the non-resident within 15 days of filing the return so they can claim the tax credit.

What do you mean by Lower/Nil TDS (Form 13)?

A non-resident can apply to the tax department asking for lower tax or nil tax to be deducted under section 197 of the Income-tax Act.

If the tax department approves the request, the person paying the money can legally deduct tax at a lower rate.

What do you understand by Foreign Remittance Declarations?

Before sending money outside India, the person making the payment has to file Form 15CA and Form 15CB on the Income Tax website. This requirement applies even if no tax is payable on the payment, except in cases where such compliance is exempted under the relevant rule.

Why submission of Form 15CA & Form 15CB is necessary?

Filing Form 15CA and Form 15CB ensures proper reporting of TDS to the Income Tax Department and allows the bank to legally process the foreign remittance.

Consequences of not correctly furnishing Form 15CA and Form 15CB

Failure to furnish the required information or furnishing incorrect or incomplete details in Form 15CA and Form 15CB in accordance with section 195(6) of the Income-tax Act, 1961, attracts penal consequences. As prescribed under section 271-I of the Act, such non-compliance is liable to a penalty of Rs 1,00,000.

Consequences of Non-Compliance:

• Business expenses may be disallowed.
• Interest at 1.5% per month is charged until TDS is deposited.
• Penalty equal to the TDS amount if TDS is deducted but not paid.
• The penalty for a short deduction is equal to the difference between the correct TDS and the deducted TDS.
• The bank may refuse or delay remittance.

Before making any payment to a non-resident (example: property purchase, interest, royalty, dividends), check if it’s taxable in India. If yes, deduct TDS under Section 195 at the applicable rate (as per the Act or DTAA), deposit it, file Form 27Q, and issue TDS certificates to ensure compliance and avoid penalties.