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Rate of TDS of Payment of Interest to Non Resident under Section 195 of Income Tax Act

Rate of TDS on payment of interest or other sum chargeable to Income Tax to non resident or foreign company not being company  has to deduct income-tax thereon at the rates in force. Person has to deduct the TDS 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 the issue of a cheque or draft or by any other mode. Where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income then also person has to deposit the TDS on such amount. Following payment to non resident are not covered under section 195 of Income Tax Act.

  • Salary Payment to Non Resident
  • Payment of dividend as referred to in section 115O and
  • Payment of interest on Loan take in foreign curreny after 1st July 2012 under under a loan agreementor by by way of issue of long-term infrastructure bonds covered under section 194LC and Payment of interest to NRI on infrastructure debt fund under section 194LB of income tax act. In these case TDS rate on interest payment will be 5%.

TDS Rate Chart for Payment to NRI

S. NoNature of Income or Payment to NRIRate of TDS
1Payment of Interest on Infrastructure Debt Fund U/s 194LB5%
2Payment of interest on Loan take in foreign curreny on long-term infrastructure bonds covered under section 194LC5%
3Interest Income From NRO Account30%
4Income from Winning from Horse race and Gambling or lotteries30%
5Payment of Interest by Govt or Indian Concern20%
6Income from Long term capital gain20%
7Income from Short Term Capital Gain30%
8Income from Securites on which STT is paid u/s 111A15%
9Payment of fee for Techinal Services and Royalty u/s 115A10%
10Payment of fee for Techinal Services and Royalty for agreement between 01/06/1997 to 31/05/200520%
11Payment of Any other Income for which no TDS rate is prescribe then TDS Rate Like Payment of Rent30%
12Payment of Any other Income for which no TDS rate is prescribe then TDS Rate for Foreign Companies will be40%
13Income by way of long-term capital gains u/s115E10%
14Any income from investment or income from long-term capital gains of an asset other than a specified asset u/s 115E20%
15Payment of income by way of  interest payable  by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency20%
Note: Education cess of 3% will be applicable in all cases

The obligation to comply with section 195 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—

  1. a residence or place of business or business connection in India; or
  2. any other presence in any manner whatsoever in India.

When No TDS Deduction on Payment to NRI

If NRI believes that some of the income is not chargeable under the act then NRI can apply for exemption from TDS deduction to Assessee Officer and if AO is satisfied the he can issue certificate for same. NRI can make an make an application to AO for no TDS deduction in Form 15C and 15D under rule 29B of Income Tax Rules. Also as per section 197 of the income tax act and Rule 28, NRI can make an application in Form 13 for lower or no deduction in case of NRI is liable for NIL or lower Income Tax.

Reference: Section 195 of the Income Tax Act, 1961

TDS on Payment of Interest to Non Resident 

195. (1) 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 any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode:

Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.

Explanation 1—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (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.

(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 to the Assessing Officer to determine, by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.]

(6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.

(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.

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