Section 195 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 195 requires any person paying a non-resident a sum chargeable to tax in India (other than salary) to deduct TDS at the rates in force, at credit or payment, whichever is earlier. Treaty rates, Form 15CA/15CB and lower-deduction certificates shape how much is withheld.
Overview
Section 195 is the master withholding provision for cross-border payments. It ensures India collects tax at source on income that a non-resident earns from India. The provision (section 195 of the 1961 Act, carried into the Income-tax Act, 2025) is deceptively short but heavily litigated, because everything turns on whether the sum is "chargeable to tax" in India.
The "Chargeable to Tax" Test
TDS under section 195 arises only on the portion of a payment that is chargeable to tax in India. A remittance purely for imported goods, or a reimbursement of cost with no income element, is generally not taxable and needs no deduction. But the payer cannot simply assume this — the position should be supported, typically by a CA certificate.
Rate of Deduction
The rate is the "rate in force" — the higher of the Act rate for that income and, where beneficial, the treaty rate. Common categories:
| Payment type | Typical Act rate (plus surcharge/cess) | Note |
|---|---|---|
| Royalty / fees for technical services | 20% (grossed where applicable) | Often reduced by treaty (10–15%) |
| Interest | 20% (special rates for ECB/bonds) | Treaty may cap at 10–15% |
| Long-term capital gains | As per the relevant capital-gains rate | Treaty may exempt or reduce |
| Other sums chargeable | Rates in force | Depends on head of income |
If the non-resident has no PAN, a higher rate may apply unless the relaxation conditions (TRC, Form 10F, contact details) are met.
Applying the Treaty Rate
To deduct at the beneficial DTAA rate, obtain from the payee: a Tax Residency Certificate from its home country, Form 10F (now filed electronically), and often a no-PE declaration. Section 90(2) allows the treaty to prevail where more favourable.
Forms 15CA and 15CB
Before remitting a taxable sum abroad, the remitter generally files Form 15CA (an online declaration) and, above the prescribed limit, obtains Form 15CB, a chartered accountant’s certificate confirming taxability, the applicable rate and the treaty basis. Small or specified remittances are exempt from Form 15CB.
Lower / Nil Deduction
Where the whole payment is not taxable, or only part is, the payer can apply under section 195(2), or the payee under section 197, to the Assessing Officer for a certificate to deduct at a lower rate or on only part of the sum. This avoids over-withholding and later refund claims.
Worked Example
An Indian company pays ₹10,00,000 as fees for technical services to a UK firm with a valid TRC and no Indian PE. The India–UK treaty caps FTS at 15%. The company deducts 15% = ₹1,50,000, files Form 15CA/15CB, and remits ₹8,50,000. Had no TRC/Form 10F been furnished, the higher Act rate would apply.
Consequences of Default
If the payer fails to deduct or deposit, it becomes an assessee-in-default, liable for the tax, interest under section 201(1A) and penalty, and the related expenditure can be disallowed. Section 195 therefore protects the payer’s own deduction, not just revenue.