NRI & FEMA Journey · Step 3 of 6
Section 195 TDS on NRI Payments
TDS compliance for payments to non-residents under Section 195 of the Income Tax Act, 1961 — DTAA treaty benefit claims, Form 15CA/15CB CA certification for remittances, Form 13 lower TDS certificate applications under Section 197, TDS on NRI property purchase, and 27Q quarterly return filing.
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When Does Section 195 Apply?
Section 195 of the Income Tax Act, 1961 requires any person making a payment to a non-resident (or a foreign company) to deduct TDS if the payment represents income chargeable to tax in India. The obligation falls on the payer (resident or non-resident entity in India) — not the NRI.
NRI property purchase price
20% (LTCG) or applicable slab (STCG) — on the entire sale consideration, not just the gain
Section 195 — NOT Section 194-IA. Buyer must obtain TAN.
NRO account interest
30.90% (including surcharge + cess), unless lower DTAA rate applies
Bank deducts TDS before crediting interest; NRI claims refund via ITR
Dividends to NRI shareholders
20% (plus surcharge and cess), unless lower DTAA rate — treaty benefit requires Tax Residency Certificate (TRC)
Indian company deducts at source; Form 15CA not required for dividend.
Professional/technical fees
10% (royalties/professional fees under Section 195(1) read with Section 115A)
DTAA may reduce — e.g., India-USA treaty caps royalties at 15%
Rent paid to NRI
30% on NRI lessor's rental income (slab rate)
Tenant must deduct TDS and file 27Q; Form 15CA required for remittance
Payment for services rendered outside India
Analysed case-by-case — payments for services wholly outside India may not be taxable in India (no PE, no income sourced in India)
Section 9 source-of-income analysis required before deduction
Form 15CA and Form 15CB — Remittance Compliance
Form 15CB — CA Certificate
A Chartered Accountant certifies that the applicable provisions of Section 195, the DTAA (if applicable), and RBI guidelines have been considered, and that TDS has been correctly deducted (or that the payment is not taxable / exempt). Form 15CB must carry a UDIN. It is required before remittance of taxable amounts exceeding ₹5 lakh and must be obtained before the Form 15CA Part C submission.
Form 15CA Part A
Filed by the payer for remittances not exceeding ₹5 lakh in the financial year, where the remittance is taxable but the amount is below the threshold for Form 15CB. Filed online on the IT portal.
Form 15CA Part B
Filed where the remittance is covered by a certificate issued by the Assessing Officer under Section 197 (i.e., the NRI has obtained a lower/nil TDS certificate for the specific payment). No Form 15CB required; the AO certificate is the basis.
Form 15CA Part C
Filed for taxable remittances exceeding ₹5 lakh — requires Form 15CB from a CA as supporting document. Both Part C and Form 15CB must be in order before the authorised dealer bank processes the outward remittance.
Form 15CA Part D
Filed for remittances not taxable in India (payment for services wholly outside India, capital account transactions that are not income, etc.). No Form 15CB required. The payer confirms the exemption/non-taxability basis.
Form 13 — Lower TDS Certificate for NRIs
Under Section 197 of the Income Tax Act, a non-resident can apply to the Jurisdictional Assessing Officer for a certificate authorising the payer to deduct TDS at a lower or nil rate. This is Form 13.
- When to use: when Section 195 TDS rate (20–30%) significantly exceeds the actual tax liability — e.g., NRI selling property with a low gain, NRO account interest below the basic exemption limit, capital gains covered by Section 54 exemption
- How to apply: online application on the Income Tax e-filing portal (taxpayer login); submitted to the Jurisdictional Assessing Officer of the non-resident
- What it covers: the certificate specifies the TDS rate, the transaction it applies to, and the financial year — the deductor (buyer/payer) must quote the certificate number on the TDS return
- Timeline: 30 days from the date of application (in practice, 4–8 weeks depending on the AO)
- We prepare the Form 13 application with projected income, capital gains computation (where applicable), estimated tax liability, and DTAA treaty analysis — and track the AO response
Frequently Asked Questions
Is Section 195 TDS applicable on all payments to NRIs?
No. Section 195 applies only when the payment represents income chargeable to tax in India. Payments for services wholly rendered outside India (no Permanent Establishment in India, income not sourced in India under Section 9) are generally not subject to TDS under Section 195. A thorough analysis under Section 9 (source of income rules) and the applicable DTAA is required before concluding that no TDS is applicable. An incorrect nil-TDS position can expose the Indian payer to Section 201 disallowance and interest on the amount short-deducted.
Can the TDS rate be reduced below 20% on NRI property purchase?
Yes, through a Form 13 lower TDS certificate from the Assessing Officer under Section 197. The NRI seller applies to their AO with a computation showing the actual capital gains tax liability. If the gain is lower than the TDS amount (because of holding period, indexation, Section 54 exemption, or DTAA), the AO can issue a certificate for TDS at a lower rate. Without Form 13, the buyer must deduct at 20% (LTCG rate) or higher on the entire sale consideration — creating a large refund claim situation for the NRI.
What is a Tax Residency Certificate (TRC) and when is it needed?
A Tax Residency Certificate (TRC) is a certificate issued by the tax authority of the NRI's country of residence, confirming that the person is a tax resident of that country. It is mandatory to claim DTAA treaty benefits — without a TRC, the NRI cannot claim the lower treaty rate on NRO interest, dividends, or capital gains. The TRC must be accompanied by a self-declaration in Form 10F if the TRC does not contain all the information required under Rule 21AB of the Income Tax Rules.
Who files Form 27Q — the payer or the NRI?
Form 27Q (Quarterly TDS statement for payments to non-residents) is filed by the deductor (the Indian payer) — not the NRI. If you are an Indian company or individual making payments to an NRI subject to Section 195, you must obtain a TAN, deduct TDS at the applicable rate, deposit the TDS to the government by the 7th of the following month, and file Form 27Q quarterly. Form 27Q is filed on TRACES/TIN-NSDL, similar to 24Q (salary TDS) and 26Q (non-salary domestic TDS).
Request Form 15CB from a CA
Fill in the remittance details. A CA will prepare and sign the Form 15CB with UDIN within 1 working day.
What Comes Next
Related Services
Tax
NRI Tax Filing
The NRI recipient of payments subject to Section 195 TDS will need to file an Indian ITR to claim credit for TDS deducted, or to obtain a refund if TDS was deducted in excess of actual tax liability. Both the deductor's Section 195 compliance and the NRI's ITR are coordinated.
Regulatory
NRI Property & FEMA Compliance
Purchasing property from an NRI triggers Section 195 TDS — NOT the 1% Section 194-IA rate applicable for resident sellers. The buyer needs Form 15CA/15CB; the NRI seller can apply for a lower TDS certificate (Form 13).
Tax
TDS Compliance
Section 195 deductions must be reflected in Form 27Q (the quarterly TDS return for non-resident payments). This is coordinated alongside domestic TDS filings (26Q, 24Q) as part of the TDS compliance retainer.