Navigating the rules for Tax Deducted at Source (TDS) on payments to Non-Resident Indians (NRIs) can be intricate. This comprehensive guide covers the essentials of TDS under Section 195, including payment procedures to the government, TDS returns, and provisions for lower or nil deduction of TDS.
1. TDS on Payments to NRI (Section 195)
Section 195 of the Income Tax Act, 1961, outlines the requirements for TDS on payments to NRIs. Here’s a detailed breakdown:
Key Points:
Who Must Deduct TDS?
- Any person (Resident or Non-Resident) liable to pay any sum to NRIs.
- Payer: Resident or Non-Resident Indian.
- Payee: Non-Resident Indian (Individuals) or Foreign Companies.
Types of Payments:
- All payments to NRIs except salaries (TDS u/s 192) and certain interest payments (TDS u/s 194LB, 194LC, and 194LD).
When to Deduct TDS?
- At the time of credit to the NRI's account or payment, whichever is earlier.
Threshold Limit:
- No threshold limit. TDS must be deducted if the NRI's income is taxable in India.
TDS Rates on Different Payments:
| Nature of Payment | Rate of TDS |
|---|---|
| Dividend | 20% |
| Short Term Capital Gains u/s 111A | 15% |
| Short Term Capital Gains other than 111A | 30% |
| Long Term Capital Gains u/s 112A (exceeding ₹1L) | 10% |
| Long Term Capital Gains (other than 112A) | 10% |
| Long Term Capital Gains on Sale of Property | 20% |
| Other Income | Normal Slab Rates |
| House Property Rent | 30% |
Note: Education cess (4%) and surcharge apply based on income thresholds:
| Income Threshold | Surcharge Rate |
|---|---|
| Up to ₹50 Lakhs | Nil |
| ₹50 Lakhs to ₹1 Crore | 10% |
| ₹1 Crore to ₹2 Crores | 15% |
| ₹2 Crores to ₹5 Crores | 25% |
| Above ₹5 Crores | 37% |
2. TDS on Sale of Property by NRIs (Section 194-IA)
Form 26QB is used for TDS on the sale of property.
TDS Rates for Property Sale:
| Sale Value | Long Term Capital Gain Tax | Surcharge | Total Tax | Health & Ed. Cess | Applicable TDS Rates |
|---|---|---|---|---|---|
| < ₹50 Lakhs | 20% | Nil | 20% | 4% | 20.8% |
| ₹50 Lakhs - ₹1 Crore | 20% | 10% | 22% | 4% | 22.88% |
| ₹1 Crore - ₹2 Crores | 20% | 15% | 23% | 4% | 23.92% |
| ₹2 Crores - ₹5 Crores | 20% | 25% | 25% | 4% | 26% |
| > ₹5 Crores | 20% | 37% | 27.4% | 4% | 28.496% |
3. TDS Payments to Government and TDS Returns
3.1. TDS Payment:
- TDS deducted on payments to NRIs must be paid to the government within 7 days from the end of the month in which the tax is deducted.
- Example: If TDS is deducted on May 14, it must be paid by June 7.
3.2. TDS Returns:
- TDS returns for payments to NRIs must be filed using Form 27Q. It needs to be filed quarterly:
- April to June: July 31
- July to September: October 31
- October to December: January 31
- January to March: May 31
Note: Form 26QB and Form 26QC cannot be filed if the payee is a Non-Resident.
3.3. Form 16A:
- Form 16A is the TDS certificate issued by the deductor to the deductee for tax deducted and deposited under Section 195. It should be issued within 15 days from the date of filing.
4. Lower Deduction / NIL Deduction of TDS
NRIs can apply for lower or nil deduction of TDS using Form 13. Here’s how:
- Application: Submit Form 13 to the assessing officer.
- Approval: If approved, the certificate specifies the lower or nil rate of TDS.
- Validity: The certificate is valid for the period specified.
By understanding these guidelines, you can ensure compliance with TDS requirements for payments to NRIs and avoid potential tax issues.
