TDS on Payments to Non-Residents
Introduction
As per section 195, tax must be deducted at source (TDS) on interest or any other sum paid to a non-resident (excluding salary) at the rates prescribed by the Finance Act.
Key Provisions
- Deductor:Any resident or non-resident making payments to a non-resident or foreign company.
- Deductee:Non-residents or foreign companies receiving income chargeable to tax in India.
- Time of Deduction:At the time of credit or payment, whichever is earlier.
Rate of TDS
- Rates are prescribed under the Finance Act and vary by income type:
o 20% – Interest, royalty, fees for technical services.
o 12.5% – Long-term capital gains (for specified cases).
o 10%/20% – Dividends
o 20% – Short-term capital gains (for specified cases)
o 30% – Any other income (35% for foreign companies).
- Rates shall be further increased by the applicable Surcharge and Cess.
- Higher rates apply if PAN is not provided (Section 206AA).
- If a DTAA (Double Taxation Avoidance Agreement) exists, tax is deducted at the lower of the DTAA rate or the Finance Act rate.
Exemptions from TDS
- Income not chargeable to tax in India under the Income-tax Act or DTAA.
- Payments already covered under other TDS provisions (e.g.,Sections 192,194LB, 194LC, etc.).
- Interest on External Commercial Borrowings (ECB) / Loans to IFSC units, subject to filing ofForm 1. [Notification No. 28/2024, dated 07-03-2024]
Compliance Requirements
- Lower/Nil Deduction Certificate:
o Non-residents may apply for a nil TDS certificate in Form 15C or 15D .
o Payers can seek determination of taxable income in Form 15E.
- Deposit of TDS:
o Challan ITNS 281 within 7 days from the end of the deduction month.
o For March deductions, deposit by 30th April.
- TDS Statement Filing:Quarterly submission in Form 27Q.
- TDS Certificate:Form 16A must be issued within 15 days of TDS statement filing.
- Intimation to Government:
o Form 15CA / Form 15CB must be submitted for payments to non-residents.
Consequences of Non-Compliance
- Failure to Deduct or Deposit TDS:
o Interest liability under Section 201.
o Penalty under Section 271C (up to the non-deducted amount).
o Prosecution under Section 276B.
- Failure to Furnish TDS Statement:
o Rs. 200 per day penalty under Section 234E (limited to TDS amount).
o Additional penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificate:Penalty under Section 272A.