1) Who is responsible to deduct tax under section 195 of the Income Tax Act, 1961?
Any person responsible for paying to a non-resident, not being a company, or to a foreign company, shall deduct income-tax thereon at the rates in force.
2) Nature of Payment
a) Any interest (not being interest referred to in sections 194LB, 194LC, and 194LD)
b) Any other sum chargeable under the provision of this Act (not being income chargeable under the head ‘Salaries’)
3) When to Deduct TDS under Section 195?
At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.
For this purpose credit to the “Interest payable account” “Suspense account” or any other name shall be deemed to be a credit of such income to the account of the payee.
For this purpose, “payment” can be in cash or by the issuing of a cheque or draft, or by any other mode.
4) Threshold limit
No threshold limit. However, tax shall be deducted from the sum chargeable to the tax. Therefore, if no sum is chargeable to tax in India, then no tax is required to be deducted.
5) Other sums under Section 195
1) Applicability: TDS is to be deducted on any sum chargeable under the provisions of the Income Tax Act, 1961 not being income chargeable under the head ‘Salaries’. (E.g. Payments such as interest, royalty, and fees for technical services are liable for tax deduction u/s. 195 of the Act)
2) Payer: Any person (both Resident and Non-resident)
3) Payee: Non-residents / Foreign Company
4) Threshold limit: NIL i.e. No Threshold limit.
5) No TDS u/s. 195 on payment of Income chargeable under the head ‘Salaries’ or payments covered u/s. 194LB or 194LC or 194LD.
6) TDS is to be deducted at the time of payment or credit, whichever is earlier
6) Income Deemed to Accrue or Arise In India
As per the provisions of Section 5(2)(b) of the Act, the total income of a non-resident also includes all income that accrues or arises or is deemed to accrue or arise in India to the non-resident.
To check whether the income of the non-resident is deemed to accrue or arise in India–We have to refer to Section 9.
If the income is deemed to accrue or arise in India, then the payer is liable to withhold taxes in India
7) Withholding tax obligation u/s. 195
If the payment to a non-resident or a foreign company is covered u/s. 9 of the Act and chargeable to tax, the provisions of Section 195 of the Act shall come into play.
As per Section 195 (1)–Tax is required to be deducted at the time of payment or credit, whichever is earlier at the rates in force.
Further, TDS u/s. 195 is also required to be withheld at the time of making provision on an accrual basis the payee is identified and the amount is ascertainable.
8) PERMANENT ESTABLISHMENT
Any person who is responsible for paying any sum being royalty or fees for technical services to a nonresident/foreign company carrying on business through a Permanent Establishment (PE) in India shall deduct tax u/s. 195 of the Act at the rate of tax at applicable rates.
Thus, for payments to Foreign Companies having a PE in India:
- ? If amount exceeds Rs.1 Crore: 40% + 4% Cess + 2% Surcharge (42.432%)
- ? If amount exceeds Rs.10 Crores: 40% + 4% Cess + 5% Surcharge (43.68%)
9) LOWER / NIL DEDUCTION CERTIFICATE–Application By Payer u/s. 195(2)
a) Application to be made by the Payer.
b) When?–When the payer considers that the whole of the such sum would not be income chargeable in the case of the recipient
c) The Assessing Officer shall determine the appropriate proportion of such sum, on which tax is required to be deducted u/s. 195 of the Act.
d) Nil Deduction Certificate can also be obtained u/s. 195(2) by the payer.
10) NIL DEDUCTION CERTIFICATE–Application By Payee u/s. 195(3)
The recipient of income (Payee) can apply to the Assessing Officer for receiving payment without deduction of tax at source.
E.g. In case of transfer of Capital Asset, if the payee wants to claim exemption u/s. 54 or 54F, he can apply to the Assessing Officer for receiving payment without deduction at source.
11) NIL / LOWER DEDUCTION CERTIFICATE u/s. 197 -FORM 13
- The recipient of income can apply to the Assessing Officer for a Lower Deduction Certificate u/s. 197 of the Act.
- Application to be made in prescribed Form No.13
- The lower Rate is to be determined keeping in view the estimated total income, total income of the previous 3 years, and taxes paid for the current year.
- Tax is to be deducted by the payer at the rate mentioned in Lower Deduction Certificate issued by the AO
12) FORM 15CA & FORM 15CB
? Introduction:
As per section 195 of the Income Tax Act, tax is required to be deducted for any sum which is taxable under the Income Tax Act. So when a person desires to make any payment or remit any money to a non-resident, the bank will require to check whether the tax was paid or not. If not paid; it will be checked if it is certified by the chartered accountant or the Assessing Officer. But there are at least 33 types of foreign remittances where the assessee does not require any submission of Form 15CA or Form 15CB.
? Need of 15CA and 15CB:
Earlier, the person making a remittance to Non-Resident was required to furnish a certificate in a specified format circulated by RBI. The basic purpose was to collect the taxes at a stage when the remittance is made as it may not be possible to collect the tax from the Non-Resident at a later stage. Thus to monitor and track the transactions in an efficient manner, it was proposed to introduce e-filling of information in the certificates. Section 195 of the Income tax act, 1961 mandates the deduction of Income tax from payments made to Non-Resident. The person making the remittance to non – the resident needs to furnish an undertaking (in form 15CA) accompanied by a Chartered Accountants Certificate in Form 15CB.
1. What is Form 15CA?
Form 15CA is a Declaration of Remitter and is considered as a tool for collecting information in lieu of payments that are chargeable for tax in the hands of recipient non-resident of India. This is starting of an effective Information Processing System which may be utilized by the Income-tax Department to freely track foreign remittances and their source to determine tax liability.
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Financial Institutions are now more vigilant in seeking such Forms before remittance is effected since now as per revised Rule 37BB a duty is implied on them to furnish Form 15CA received from the remitter to an income-tax authority for the uses of any proceedings under the Income-tax Act.
1. What is Form 15CB?
Form 15CB liability can be ascertained and certified by obtaining the Certificate from a Chartered Accountant in Form no. 15CB. This certificate has been prescribed under Section 195(6) of the Income-tax Act and is an alternate channel of obtaining Tax clearance apart from the Certificate from the Assessing Officer.