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NRI TDS|TDS on Non-Residents of India |What is Section 195 of Income Tax | YES BANK

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Non-residents of India have to file their tax returns in India if they have income sources in this country. However, the tax laws applicable to such Non-Resident Indians (NRIs) are somewhat complicated. Hence, if you are an NRI with an income arising in India, you need to be aware of the stipulations under Section 195 of the Income Tax Act (ITA), 1961.

What is Section 195?

This Section details the Tax Deducted at Source (TDS) on payments made from India to NRIs. Section 6 of the ITA defines non-resident status. TDS applies to such non-residents for any amount generated from business transactions in India. The amount may or may not be an income of a profit. NRIs have to pay TDS even for income types from which resident Indians are exempt, like dividends on mutual funds.

Section 195 puts forward guidelines for relevant deductions. It also defines the applicable tax rates on financial transactions the NRIs perform in India.

Deducting the tax at the time of payment eliminates chances of tax evasion. It also simplifies tax payment for the non-resident, as the onus for the deduction is on the payer. Entities considered as a payer (person remitting payments to an NRI) include:

  • Individuals

  • Hindu Undivided Families (HUF)

  • Companies, Indian or multinational

  • Foreign organizations

  • Non-residents making payments to non-residents

Even for individuals having tax-free income or income sources non-taxable in India, charging TDS on non-residents& is mandatory.

As a payee, you can claim credit for such TDS when you file your ITR in India. The certificate of TDS remittance is mandatory to claim the credit. Thus it helps you avoid double-taxation in your country of residence. You can also claim refunds if the tax deducted exceeds your liability.

How to charge TDS on non-residents?

As a payer/buyer sending payments to an NRI, you should follow the steps listed below:

  • Fill up Form 49B online and apply for a Tax Deduction Account Number (TAN) under Section 203A.

  • Enter your PAN and the NRI seller’s PAN in the form.

  • Deduct the total tax directly from the payment when you credit the recipient.

  • Mention the charged TDS rate and amount in the sale deed.

  • Deposit the TDS through the appropriate challan within day 7 of the subsequent month after the deduction date

  • File TDS return electronically via Form 27Q in the relevant quarter of the financial year

  • Issue Form 16A as the TDS certificate to the NRI seller or recipient

  • Remember to issue the certificate within 15 days of the pertinent TDS return due date

Rates of TDS on NRI payees

 

Type of Income

TDS Rates (%)

Revenue generated from investments the NRI made

20%

Profits the NRI obtained from long-term capital gains under Section 115E

10%

Long-term capital gains

10%

Short term capital gains under section 111A

15%

Any other income an NRI derived from long-term capital gains

20%

Interest payable on money taken on loan in foreign currency

20%

Income from royalty owed from the Indian government or an Indian concern

10%

Income from royalty different from the royalty payable by the government or an Indian concern

10%

Proceeds from fees for technical services billed to the government or an Indian concern

10%

Any other earnings

30%

 

Education cess and surcharge also apply over and above the TDS rates under Section 195.

Conclusion

Compliance with the rules for TDS on NRI payments is compulsory. Hence, you must deduct the accurate TDS and file it on time to avoid penalties.

You can also visit YES BANK's website to know more about their NRI Savings Account & Fixed Deposit

 

 

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