Section 195 | Deduction of Tax at Source from Other Sums

Section 195 of the Income-tax Act, 1961

A person (resident or non-resident) responsible for making payment to a non-resident or foreign company of any interest or any other sum (not being salary) is required to deduct tax at source under section 195, if in the hands of the recipient such payment is chargeable to tax in India. Tax is deductible at the time of payment or at the time of credit to the account of payee, interest payable account, or suspense account, whichever is earlier. Tax is deductible at  the rates prescribed by the relevant Finance Act

• • TDS liability under section 195 arises only when income is credited to the account of payee or on actual payment of same, whichever is earlier and mere accrual of income in hands of foreign company would not be sufficient proximate reason for tax deductors liability under section 195—J. International Hotels Ltd. v. ITO (TDS) [2001] 79 ITD 506 (Delhi).

• • Payment to non-resident/foreign company is covered by section 195, whether payment is made within India or the payment is made outside India. The status of the payment or the source of the payment is not a relevant consideration while applying the provisions of section 195—Satellite Television Asian Region Ltd. CIT [2006] 99 ITD 91/99 TTJ 1025 (Mum.) 
  • Tax is deductible under section 195 whether the deductor is resident (or non-resident). Tax is deductible even if the non-resident deductor does not have any place of business, residence, business connection (or any other presence) in India. 
  • When the payment of credit is given to a non-resident/foreign company and in the hands of the recipient, income is taxable in India, tax is deductible by the payer under section 195. If, however, such payment or credit is covered by some other sections, tax is deductible under that section and not under section 195. For instance, salary payments are covered by section 192. If salary is paid to a non-resident, tax is deductible under section 192 and not under section 195. Likewise, if tax is deductible under sections 194E, 194LB, and 194LC, the provisions of section 195 are not applicable. 
  • With effect from June 1, 2015, the person responsible for paying to a non-resident/foreign company, any sum (whether or not chargeable under the provisions of this Act in the hands of recipient) shall furnish the information relating to the payment of such sum, in such form and manner, as may be prescribed.

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