Section 195 TDS on NRI Payments

Statutory basis: Section 195 of the Income-tax Act, 1961, requires any person making a payment to a non-resident (or foreign company) that is chargeable to tax in India to deduct TDS at the time of credit or payment, whichever is earlier — there is no minimum threshold below which Section 195 does not apply, unlike most domestic TDS sections.

Default rate: absent a lower rate under a Double Taxation Avoidance Agreement (DTAA), payments to non-residents attract TDS at rates specified under the Income-tax Act (e.g., 20% plus surcharge/cess for royalty and fees for technical services under Section 115A, or the rates in Part II of the Finance Act's TDS schedule for other categories). Under Section 90(2), the non-resident is entitled to whichever is more beneficial — the Act's rate or the applicable DTAA rate — so the DTAA rate governs whenever it is lower and the recipient furnishes a Tax Residency Certificate and Form 10F (Section 90(5)/90A(5), Rule 21AB).

Compliance mechanics: before remitting, the payer/remitter must furnish Form 15CA (self-declaration) and, for larger or non-exempt remittances, Form 15CB (a Chartered Accountant's certificate under Rule 37BB) on the income-tax e-filing portal. TDS deducted under Section 195 is reported in the quarterly TDS return Form 27Q (due 31 July, 31 October, 31 January, and 31 May for Q1–Q4 respectively of FY 2025-26/2026-27), distinct from Form 26Q used for resident-payee TDS.

Sources: taxbuddy.com, cleartax.in, and bajajfinserv.in on the Section 195 default-rate/DTAA-override mechanism and Form 27Q filing requirement; kotak.bank.in on the Form 15CA/15CB remittance procedure (WebSearch, 8 Sep 2026); Form 27Q due dates and Rule 37BB(3) cross-ratified from this firm's own verified form-15ca-15cb and tds-return-filing regulatory_basis entries.

Section 195 TDS compliance covers the tax deducted at source on the payments made to the non-residents under Section 195 of the Income-tax Act 1961 — the deduction of the TDS at the prescribed rates on the payments of the interest, the royalties, the fees for the technical services, the dividends and the other sums chargeable to the tax in the hands of the non-resident, the deposit and the filing of the TDS returns, the lower or the nil deduction under Section 195(2) or the certificate under Section 197, and the disallowance of the payments under Section 40(a)(i) where the TDS was not deducted.

The Section 195 TDS is the withholding on the cross-border payments — the interest on the foreign debt, the royalty and the fees for the technical services under the Act, the payments to the foreign contractors and the consultants — and its compliance is the gate of the cross-border expense. The deductor must deduct at the prescribed rates, deposit and file, apply for the lower or the nil withholding where the treaty reduces the rate, and the failure carries the disallowance of the payment under Section 40(a)(i) and the interest.

The cost of a broken Section 195 compliance is the disallowed expense and the interest: the payments made without the TDS disallowed under Section 40(a)(i), the short deduction with the interest, and the treaty rate that was never claimed.

This service is for companies and the individuals making payments to the non-residents. We determine the withholding under Section 195 and the treaty rates, manage the deduction, the deposit and the TDS returns, apply for the lower or the nil withholding under Sections 195(2) and 197, and review the cross-border payments so the expenses remain deductible and the withholding is right.