Section 195.
TDS on payments to non-residents.
Any sum paid to a non-resident chargeable to tax in India
When it applies
Section 195 is the catch-all for payments to non-residents. It applies on interest, royalty, fees for technical services, professional fees, business income (where the non-resident has a Permanent Establishment in India), and any other sum chargeable to tax in India under the Act. Salary is excluded (Section 192 covers it).
Who must deduct
Any person (resident or non-resident) making the payment — individuals, businesses, even other non-residents. There is no carve-out for small payers under 195.
Common mistakes
- Not analysing the DTAA — applying domestic rate where the treaty offers a lower rate.
- Forgetting Form 15CA/15CB before remittance — the bank will refuse to remit without these.
- Treating reimbursements without a markup as not taxable — CBDT and courts have taken nuanced views; document carefully.
- Missing surcharge and cess in the gross rate — DTAA rates are exclusive of these unless specified.
Frequently asked
When can I use the DTAA rate instead of the Income Tax Act rate?
When the recipient is a tax resident of a country with which India has a DTAA, the recipient furnishes a Tax Residency Certificate (TRC) and Form 10F, and the DTAA rate is more beneficial. Section 90(2) lets you pick whichever is more beneficial for the taxpayer.
What is Form 15CA / 15CB?
Form 15CA is the remitter's declaration of the nature and amount of payment to a non-resident. Form 15CB is a CA's certificate validating the TDS deduction. Both are uploaded on the IT portal before the bank processes the foreign remittance. The exact thresholds for when each is required have changed; check the latest rules.
Does Section 195 apply on reimbursements?
Generally yes if the payment includes any element of income. Pure reimbursements at cost, properly documented, may be outside scope per CBDT circulars and judicial precedents. Litigation has been active in this area — get a CA opinion for borderline cases.