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2022

Provisions of TDS on Income earned by Non-Residents in India

 Provisions of TDS on Income earned by Non Residents in India Blog Post

TDS on Payments to Non-Residents [Section 195]:

Applicability of the Section:

  • Section 195 of the Income Tax Act, 1961 lays down provisions for tax deductions from payments made to Non-Resident Indians (NRIs).
  • This section focuses on tax rates and deductions on daily business transactions with a non-resident.
  • Any amount generated through these business transactions is chargeable under Income Tax Act, 1961. Such amount may or may not be income or profits. The certificate for remittance is compulsory.

Liability to Deduct TDS under this Section:

The payer, that is, the person remitting payments to a NRI can be any person as follows:

  • Individual;
  • Hindu Undivided Family (HUF);
  • Indians and international companies;
  • Person with exempt income in India; and
  • Juristic person with or without an income that is chargeable to tax in India.

Note: The payee, under Section 195, is any non-resident with a residential status that comes under the purview of Section 6 of the Income Tax Act, 1961.

Nature of Payment covered under Section 195:

  • Any interest (not being interest referred to in section 194LB, 194LC and 194LD)
  • Any other sum chargeable under the provision of this Act (not being income chargeable under the head ‘Salary’).

Rate of TDS under Section 195:

 

Nature of Income

Particulars

TDS Rate

Investment

Income from investments made by a NRI

20%

LTCG

Income from long-term capital gains under Section 115E for a NRI

10%

Income from long-term capital gains

10%

 

Any other income from long-term capital gains

20%

STCG

Short-term capital gains under Section 111A

15%

Borrowings

Interest payable on money borrowed in foreign currency

20%

Royalty

Income from royalty payable by the Government or an Indian concern

10%

Income from royalty other than that which is payable by the Government or an Indian concern

10%

Technical Services

Income from fees for technical services payable by the Government or an Indian concern

10%

Other

Any other source of income

30%

 

Notes:

  • TDS rates under Section 195 of Income Tax Act, 1961 shall be taken in accordance with rates of income tax specified in the:
  • Finance Act of the relevant previous year, or
  • Double Taxation Avoidance Agreement (DTAA)
  • The provisions of the Act or the DTAA, whichever is more beneficial to the assessee shall be applied.
  • Surcharge and Education Cess: Surcharge and Education Cessare not required to be added separately if the rates mentioned in DTAA are applied.

Threshold Limit under Section 195:

  • As such no threshold limit is prescribed under this Section. This means TDS should be deducted on all the relevant payments irrespective of the quantum of the payment.
  • However, tax shall be deducted on sum chargeable to tax. Therefore, if no sum is chargeable to tax in India, then no tax is required to be deducted.

Income deemed to Accrue or Arise in India:

  • The total income of a nonresident also includes all income which accrues or arises or is deemed to accrue or arise in India to the non-resident.
  • Section 9 of the Income Tax Act, 1961 deals with the incomes deemed to accrue or arise in India. According to Section 9, following incomes are deemed to accrue or arise in India:
  1. Interest Income:
    1. Interest received from Government of India.
    2. Interest received from a resident is treated as income deemed to have accrued or arisen in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and used by resident for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.
    3. Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is in respect of funds borrowed by the non-resident for carrying on any business/profession in India.
  1. Royalty or Fees for Technical Services:
  1. Royalty/fees for technical services received from Government of India.
  2. Royalty/fees for technical services received from resident is treated as income deemed to have accrued or arisen in India in all cases, except where such royalty/fees relates to business/profession/other source of income carried on by the payer outside India.
  3. Royalty/fees for technical services received from non-resident is treated as income deemed to have accrued or arisen in India if such royalty/fees is for business/profession/other source of income carried by the payer in India.
  1. Income from Salary:
  1. Income from salary in respect of services rendered in India.
  2. Salary received by an Indian national from Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
  1. Other Income:
  1. Capital gain arising on transfer of property situated in India.
  2. Income from business connection in India.
  3. Income from any property, asset or other source of income located in India.
  4. Dividend paid by an Indian company.

Lower Deduction / No Deduction of Tax:

  • TDS under this section may be deducted at lower rate of Form 13 for Lower Deduction is furnished by the payee.
  • Lower Rate to be determined keeping in view the estimated total income, total income of previous 3 years, taxes paid for the current year.
  • Tax to be deducted by the payer at the rate mentioned in Lower Deduction Certificate issued by the AO.

TDS on Payments to Non-Resident Sportsmen or Sports Association [Section 194E]:

India is a sports loving county especially cricket. Indian IPL has now become an international event and many cricketers from all across the world keep visiting India for playing cricket. Similar is the case with other sports players, athletes, coaches, umpires, and entertainerswho come to India to take part in different tournaments or render their service. As these players receive their fees in India, such fees are taxable in India. Section 194E of the Income Tax Act, 1961 concerns deduction of TDS from the income earned by such foreign or non-resident sportsmen in India.

 

Extract of Section 194E of Income Tax Act, 1961

Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) [or an entertainer] who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment 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 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.]

 

Liability to Deduct TDS under Section 194E:

TDS u/s 194E should be deducted by every person who:

  • Pays money to a non-resident sportsman (including an athlete) or an entertainer (who is not an Indian citizen); or
  • Pays money to a sports institution or an association, an income as referred u/s 115BBA is required to deduct tax at source u/s 194E.

Brief Note on Section 115BB:

  • This section provides a special tax rate @ 20% (plus EC and SHEC), Plus Surcharge as applicable on specified income arising to a Non-Resident Sportsman or Entertainer or Sports Association.
  • No deduction for any expenditure incurred and allowance is given to such assessee u/s 115BBA.

Specified Income on which TDS is deductible:

  • Specified income of Non-Resident Individual includes:
    • Income from participating in any games/ sports/ performance(other than card game or gambling, etc.); or
    • Income from advertising; or
    • Contribution of articles relating to any game or sport in India in newspapers, magazines or journals.
  • Specified Income of Non–Resident Sports Association or Institution:
    1. Any amount guaranteed to be paid or payable in relation of any game (other than card game, etc.) or sport played in India.
  • Specified Income of Non–Resident Entertainer:
    1. Income is from his performance in India.

Note: All such income as mentioned above should arise only in India.

Rate of TDS:

The rate of tax deduction u/s 194E is 20% (Plus Surcharge and Health & Education Cess @ 4%.

Payment ofInterest from Infrastructure Debt Fund to Non-Resident [Section 194LB]:

Applicability of Section 194LB:

Section 194LB shall be applicable if the following conditions are satisfied:

  • The interest income is paid by an infrastructure debt fund referred to in section 10 (47); and
  • The interest income is paid to a non-resident (not being a company) or to a foreign company.

Rate of TDS Deduction:

  • TDS under this section should be deducted at the rate of 5%.
  • Further SHE cessand surcharge, if applicable,should also be added.

Time of Deduction of TDS:

  • The Deductor who is liable to deduct TDS under provisions of this sectionis required to deduct TDS within earlier of the following dates:
    • At the time of credit of income to the account of the payee; or
    • At the time of payment in cash, cheque, draft, or by any other mode.
  • For this purpose credit to ― Expense Payable account‖ or Suspense account‖ or any other name shall be deemed to be a credit of such income to the account of the payee.
  • Payment may be made in cash or by issue of a cheque or draft of by any other mode.

Time Limit to deposit TDS:

  • TDS deducted is required to be deposited to the credit of the Government within given below timeline to avoid interest:

Month of Deduction

Due date of deposit of TDS

During any month from April to February

7th of Subsequent Month

During the month of March

30th April

 

TDS Return Filing Due Date:

 

Quarter

TDS Return Filing Due Date

Q1: April to June

31st July

Q2: July to September

31st October

Q3: October to December

31st January

Q4: January to March

31st May

 

Due Date of Issuance of TDS Certificate:

 

Quarter

TDS Return Filing Due Date

Q1: April to June

15th  August

Q2: July to September

15th  November

Q3: October to December

15th February

Q4: January to March

15th June

Interest on Late Filing:

 

Section

Nature of Default

Interest Payable

Period for which interest is to be paid

201A

Non deduction of tax at source, either in whole or in part

1% per month or part thereof

From the date on which tax deductible to the date on which tax is actually deducted.

After deduction of tax, Non-payment of tax either in whole or in part

1.5% per month or part thereof

From the date of deduction to the date of payment.

Notes:

  • The above interest should be paid before filing of TDS return. The deductor can make the payment of interest on such late payment of TDS before filing TDS returns or demand raised by TRACES.
  • The interest paid u/s 201A is not allowed as an expense under the Income Tax provisions.
  • Interest to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Penalty for late filing of TDS Returns:

  • Section 234E:
  • The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues.
  • However, the penalty should not exceed the amount of TDS for which the statement was required to be filed.
  • Section 271H:
    • Also, a penalty from Rs.10,000 to Rs.1 lakh is leviable under Section 271H if a company provides incorrect information or fails to submit the returns within the specified due date.
    • This penalty will be charged in addition to the penalty under Section 234E.
    • No penalty under Section 271H will be charged in case of delay in filing the TDS/TCS return if the following conditions are satisfied:
    1. The tax deducted/collected at source is paid to the credit of the government.
    2. Late filing fees and interest (if any) is paid to the credit of the government.
    3. The TDS/TCS return is filed before the expiry of a period of one year from the due date specified in this behalf.

 

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