Rate of TDS of Payment of Interest to Non Resident under Section 195 of Income Tax Act

Rate of TDS on payment of interest or other sum chargeable to Income Tax to non resident or foreign company not being company  has to deduct income-tax thereon at the rates in force. Person has to deduct the TDS at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. Where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income then also person has to deposit the TDS on such amount. Following payment to non resident are not covered under section 195 of Income Tax Act.

  • Salary Payment to Non Resident
  • Payment of dividend as referred to in section 115O and
  • Payment of interest on Loan take in foreign curreny after 1st July 2012 under under a loan agreementor by by way of issue of long-term infrastructure bonds covered under section 194LC and Payment of interest to NRI on infrastructure debt fund under section 194LB of income tax act. In these case TDS rate on interest payment will be 5%.

TDS Rate Chart for Payment to NRI

S. NoNature of Income or Payment to NRIRate of TDS
1Payment of Interest on Infrastructure Debt Fund U/s 194LB5%
2Payment of interest on Loan take in foreign curreny on long-term infrastructure bonds covered under section 194LC5%
3Interest Income From NRO Account30%
4Income from Winning from Horse race and Gambling or lotteries30%
5Payment of Interest by Govt or Indian Concern20%
6Income from Long term capital gain20%
7Income from Short Term Capital Gain30%
8Income from Securites on which STT is paid u/s 111A15%
9Payment of fee for Techinal Services and Royalty u/s 115A10%
10Payment of fee for Techinal Services and Royalty for agreement between 01/06/1997 to 31/05/200520%
11Payment of Any other Income for which no TDS rate is prescribe then TDS Rate Like Payment of Rent30%
12Payment of Any other Income for which no TDS rate is prescribe then TDS Rate for Foreign Companies will be40%
13Income by way of long-term capital gains u/s115E10%
14Any income from investment or income from long-term capital gains of an asset other than a specified asset u/s 115E20%
15Payment of income by way of  interest payable  by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency20%
Note: Education cess of 3% will be applicable in all cases

The obligation to comply with section 195 and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—

  1. a residence or place of business or business connection in India; or
  2. any other presence in any manner whatsoever in India.

When No TDS Deduction on Payment to NRI

If NRI believes that some of the income is not chargeable under the act then NRI can apply for exemption from TDS deduction to Assessee Officer and if AO is satisfied the he can issue certificate for same. NRI can make an make an application to AO for no TDS deduction in Form 15C and 15D under rule 29B of Income Tax Rules. Also as per section 197 of the income tax act and Rule 28, NRI can make an application in Form 13 for lower or no deduction in case of NRI is liable for NIL or lower Income Tax.

Reference: Section 195 of the Income Tax Act, 1961

TDS on Payment of Interest to Non Resident 

195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode:

Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.

Explanation 1—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—

 (i)  a residence or place of business or business connection in India; or

(ii)  any other presence in any manner whatsoever in India.

(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.]

(6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.

(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.

List of Income which are Taxable for Non Resident Indian

Non Resident Indian (NRI) has to pay tax on all the income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues  or arises or is deemed to accrue or arise to him in India during such year. But Income accruing or arising outside India shall not be deemed to be received in India.

Also Income once taxed on the basis of accrual can’t be again taxed based on the receipt of such income.

Section of 5 of the Income tax India : Taxability of Non-residents in India

Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—

(a)  is received  or is deemed to be received in India in such year by or on behalf of such person; or

(b)  accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen  to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

Who is Non Resident Indian(NRI) for Income Tax

Every Person who is residing outside India had the query about the meaning of Non Resident India(NRI) or who are NRI for Income Tax purpose. Section 2(30) of the Income Tax Act,1961 which define the Meaning of NRI “non-resident” means a person who is not a “resident”, and for the purposes of sections 92,93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6.

An individual is said to be Resident in India in any previous year if he satisfied one of the following basic conditions –

  • He has been in India in the previous year for 182 days or more
  • He has been in India in the precious year for 60 days or more and 365 days or more during 4 years immediately preceding the previous year

If any one of the following Basic condition is satisfied then an Individual is treated as “Resident” in India if not satisfied an Individual is treated as “Non-resident” in India

An Individual is “ordinary Resident” or “Non-resident” in India

If an Individual is Resident in India, then the following both additional conditions are satisfied for “ordinary resident”

  • He has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous year.
  • He has been in India for 730 days or more during 7 years immediately preceding the relevant previous year.

If the both additional condition and one Basic are satisfied, an Individual is treated as “Resident and Ordinary resident” in India and

Meaning of Not Ordinary Resident 

A person is said to be “not ordinarily resident” in India in any previous year if such person is—

      (a)  an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

      (b)  a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.]

Deemed Arm’s Length price for Assessment Year 2013‐2014

Deemed Arm’s Length price for assessment year 2013‐2014: Income Tax Notification No. 30/2013 dated 15th April 2013

n exercise of the powers conferred by the second proviso to sub‐section (2) of section 92C of the Income Tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed one per cent of the latter for wholesale traders and three per cent of the latter in all other cases, the price at which the international transaction or specified domestic transaction has actually been undertaken shall be deemed to be the arm’s length price for assessment year 2013‐2014.

Reference: Section 92C of the Income Tax Act

Computation of arm’s length price.

92C. (1) The arm’s length price in relation to an international transaction [or specified domestic transactionshall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :—

 (a) comparable uncontrolled price method;

 (b) resale price method;

 (c) cost plus method;

 (d) profit split method;

 (e) transactional net margin method;

 (f) such other method as may be prescribed by the Board.

(2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed :

Provided that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices:

Provided further that if the variation between the arm’s length price so determined and price at which the international transaction [or specified domestic transaction] has actually been undertaken [does not exceed 9[such percentage of the latter, as may be notified] by the Central Government in the Official Gazette in this behalf], the price at which the international transaction [or specified domestic transaction] has actually been undertaken shall be deemed to be the arm’s length price.]

[Explanation.—For the removal of doubts, it is hereby clarified that the provisions of the second proviso shall also be applicable to all assessment or reassessment proceedings pending before an Assessing Officer as on the 1st day of October, 2009.]

[(2A) Where the first proviso to sub-section (2) as it stood before its amendment by the Finance (No. 2) Act, 2009 (33 of 2009), is applicable in respect of an international transaction for an assessment year and the variation between the arithmetical mean referred to in the said proviso and the price at which such transaction has actually been undertaken exceeds five per cent of the arithmetical mean, then, the assessee shall not be entitled to exercise the option as referred to in the said proviso.]

[(2B) Nothing contained in sub-section (2A) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154 for any assessment year the proceedings of which have been completed before the 1st day of October, 2009.

(3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that—

 (a) the price charged or paid in an international transaction [or specified domestic transaction] has not been determined in accordance with sub-sections (1) and (2); or

 (b) any information and document relating to an international transaction [or specified domestic transaction] have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or

 (c) the information or data used in computation of the arm’s length price is not reliable or correct; or

 (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,

the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction [or specified domestic transaction] in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him:

Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

(4) Where an arm’s length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined :

Provided that no deduction under section 10A [or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section :

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted 11[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

Rate of TDS on Payment to Non Resident Under Section 196A of the Income Tax Act

Rate of TDS on payment of any income in respect of units of a Mutual Fund to non resident by any person other than a company under section 196A of the Income Tax Act is 20% at the time of payment of such mutual fund income to non resident.

Provided that no deduction shall be made under this section from any such income credited or paid on or after the 1st day of April, 2003.

Reference: Section 196A of the Income Tax Act,1961

Income in respect of units of non-residents.

196A. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent :

Provided that no deduction shall be made under this section from any such income credited or paid on or after the 1st day of April, 2003.

(2) Notwithstanding anything contained in sub-section (1), no deduction of tax shall be made from any income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family, where the units have been acquired from the Unit Trust of India out of the funds in a Non-resident (External) Account maintained with any bank in India or by remittance of funds in foreign currency, in accordance, in either case, with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made thereunder.

Explanation.—For the purposes of this section—

(a) “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973 (46 of 1973);

(b)  “non-resident Indian” shall have the meaning assigned to it in clause (e) of section 115C;

(c)  “Unit Trust of India” means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(d)  where any income as aforesaid is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.