Section 195 - TDS on income of non-resident or a foreign company - Income Tax - Ready Reckoner - Income Tax

Section 195 : TDS on any interest or other sum chargeable under the Income tax Act payable to Non Resident or Foreign Company Who is responsible and rate of tax 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 section 194LD ) or any other sum chargeable under this Act (other than salary) shall, deduct income-tax thereon at the rates in force. With effect from 01.06.2015, the person responsible for paying to a non-resident/foreign company, any sum (whether or not chargeable under the provisions of this act in the hands of recipient) shall furnish the information relating to payment of such sum, in such form and manner as may as be prescribed. Only in case of doubt deductor can approach Assessing Officer under section 195(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 in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted u/s 195(1) only on that proportion of the sum which is so chargeable. Time of deduction Tax to be deducted at the time of credit of such income to the account of payee or by payment in cash or cheque or any other mode, whichever is earlier. When tax is deducted at lower rate or when no tax is deducted Tax at source should not be deducted or should be deducted at lower rate, as the case may be, where the recipient has made an application [ Form No. 13, 15C and 15D ] to the assessing officer and obtained a certificate to that effect. Prescribed Form [ Rule 29BA ] An application by a person for determination of appropriate proportion of sum chargeable in the case of non-resident recipient u/s 195(2)/(7) shall be made in Form 15E electronically,- (i) under digital signature; or (ii) through electronic verification code. [ Rule 29BA(1) ] The Assessing Officer, in order to satisfy himself, shall examine whether the sum being paid or credited is chargeable to tax under the provisions of the Act read with the relevant Double Taxation Avoidance Agreement, if any, and if the sum is chargeable to tax he shall proceed to determine the appropriate proportion of such sum chargeable to tax. [ Rule 29BA(2) ] The Assessing Officer shall examine the application and on being satisfied that the whole of such sum would not be the income chargeable in case of the recipient, may issue a certificate determining appropriate proportion of such sum chargeable under the provision of this Act, for the purposes of tax deduction u/s 195(1). [ Rule 29BA(3) ] Required Information at the time application :- While examining the application, the Assessing Officer shall also take into consideration, following information in relation to the recipient:- (i) tax payable on estimated income of the previous year relevant to the assessment year; (ii) tax payable on the assessed or returned or estimated income, as the case may be, of preceding four previous years; (iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957; (iv) advance tax payment, tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under rule 29BA(1). [ Rule 29BA(4) ] Validity of certificate:- The certificate shall be valid only for the payment to non-resident named therein and for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. [ Rule 29BA(5) ] An application for a fresh certificate may be made, if the assessee so desires, after the expiry of the period of validity of the earlier certificate or within three months before the expiry thereof. [ Rule 29BA(6) ] The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for ensuring secure capture and transmission of data and uploading of documents and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the furnishing of Form No 15E and issuance of Certificate under rule 29BA(3). [ Rule 29BA(7) ] Furnishing information regarding remittance to non-resident [ Rule 37BB ] A person making remittance to a Non-resident/foreign company is required an undertaking in digital mode in Form No. 15CA. In some cases, a certificate of a chartered accountant in Form no. 15CB has to be taken before uploading form no. 15CA. The relevant provisions applicable from 01.04.2016. Amount which is remitted to abroad is chargeable to tax in the hands of recipient The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum chargeable under the provisions of the Act, shall furnish the following, namely:- (i) the information in Part A of Form No.15CA , if the amount of payment or the aggregate of such payments, as the case may be, made during the financial year does not exceed five lakh rupees; (ii) for payments other than the payments referred in clause (i), the information,- (a) in Part B of Form No.15CA after obtaining,- (I) a certificate from the Assessing Officer under section 197 ; or (II) an order from the Assessing Officer under section 195(2)/(3) ; (b) in Part C of Form No.15CA after obtaining a certificate in Form No. 15CB from an accountant as defined in the Explanation below section 288(2) . [ Rule 37BB(1) ] Amount which is remitted to abroad is not chargeable to tax in the hands of recipient No information is required to be furnished for any sum which is not chargeable under the provisions of the Act, if,- (i) the remittance is made by an individual and it does not require prior approval of Reserve Bank of India as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000 ; or (ia) the remittance is made by a Unit of an International Financial Services Centre referred to in section 80LA(1A); or (ii) the remittance pertains to 33 items specified in rule 37BB(3)(ii). [ Rule 37BB(3) ] In any other case The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum which is not chargeable under the provisions of the Act, shall furnish the information in Part D of Form No.15CA . [ Rule 37BB(2) ] Other points ​​​​The information in Form No. 15CA shall be furnished,- (i) electronically under digital signature and thereafter printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment; or (ii) electronically in accordance with the procedures, formats and standards specified under rule 37BB(8) and thereafter signed printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment. [ Rule 37BB(4) ] An income-tax authority may require the authorised dealer to furnish the signed printout of Form No.15CA referred to in clause (ii) of rule 37BB(4) for the purposes of any proceedings under the Act. [ Rule 37BB(5) ] The certificate in Form No. 15CB shall be furnished and verified electronically in accordance with the procedures, formats and standards specified in rile 37BB(8). [ Rule 37BB(6) ] A quarterly statement, for each quarter of the financial year shall be furnished in respect of all remittances referred to in sub-rules Rule 37BB(1)/ (2)/ (3) by, (i) the authorised dealer in Form No. 15CC; (ii) a Unit of an International Financial Services Centre referred to in section 80LA(1A), responsible for paying to a non-resident, not being a company, or to a foreign company, in Form No. 15CD, to the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorised by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) electronically under digital signature within fifteen days from the end of the quarter of the financial year to which such statement relates in accordance with the procedures, formats and standards specified in rule 37BB(8). [ Rule 37BB(7) ] The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of Form No. 15CA/ 15CB/ 15CC/ 15CD and shall be responsible for the day-to-day administration in relation to the furnishing and verification of information, certificate and quarterly statement in accordance with the provisions of rules 37BB(4)/ (6)/ (7). [ Rule 37BB(8) ] Refund for denying liability to deduct tax in certain cases [ Section 239A ] Make Application - Where under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government claims that no tax was required to be deducted on such income, may, file an application before the Assessing Officer for refund of such tax. Form and Time Period of filling of application - Make a application in Form No. 29D, within a period of 30 days from the date of payment of such tax. Opportunity of being heard - No application shall be rejected unless an opportunity of being heard has been given to the applicant. Order should be in writing:- The Assessing Officer shall, by an order in writing, allow or reject the application, before passing an order make such inquiry as he considers necessary. Time Limit for passing order:- The order shall be passed within six months from the end of the month in which application is received. File appeal against order - If applicant is not satisfied with the order of assessing officer, he can file into appeal against the order before the commissioner(appeals) u/s 246A. Procedure for refund of TDS u/s 195 to the person deducting tax in cases where tax is deducted at a Higher rate prescribed in the DTAA The CBDT has, through Circular no. 07/2007 dated 23.10.2007 which laid down the procedure for refund of tax deducted at source u/s 195 of the income tax, 1961. such circular modified through circular no. 07/2011 dated 27.09.2011. Payment of interest on refund under section 244A of excess TDS deposited under section 195 of the Income tax Act, 1961 if a resident deductor is entitled for the refund of tax deposited under Section 195 of the Act , then it has to be refunded with interest under section 244A of the Act , from the date of payment of such tax. [ Circular No. 11/2016 dated 26.04.2016 ] [ Union of India Through director of Income Tax vs M/s Tata Chemical Limited 2014 (3) TMI 610 - SUPREME COURT ] Note: In the case of interest payable by the Government or a public sector bank u/s 10(23D) or a public financial institution, deduction of tax shall be made only at the time of payment thereof in cash or cheque or by any other mode For the removal of doubts, it is hereby clarified that the obligation to comply with section 195(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. The assessee can make an application to Assessing Officer for non-deduction of TDS where the sum payable to non-resident or foreign company is not taxable in India. The person responsible to deduct tax (whether or not chargeable under the provisions of this Act in the hands of recipient) should furnish the particulars of payments in prescribed form.