Tax deducted at source (TDS) - Non RESIDENT TDS RATES

Tax deducted at source (TDS) – Non RESIDENT TDS RATES

Non- resident /foreign company/ FII/Qualified foreign investor related TDS sections:

Section 195: TDS on Non-Resident Payments

Any person responsible for paying to a non-resident or foreign company shall –

deduct income tax thereon at the rates in force.

Nature of Payment Cover:

Any interest (other than interest referred to in section 194LB, 194LC,194LD), any other sum chargeable under the provision of this act (excluded salary head income). It means payment to non-resident /foreign company/FII/Qualified foreign investor all tds provision is not applicable few special tds provision covering 192(salary payment to non- resident), 195, 194LB,194LC,194LD.

Interest or any other payment will be credited or paid in any name whether suspense or interest or any other and liable to tds deduction credited or paid whichever is earlier, one most important point which cheque or draft of by any other mode and if interest is payable by government or public sector bank or public financial institution then tax deduction shall be made only at the time of payment only

Threshold limit: No threshold limit. However, tax shall be deducted on sum chargeable to tax in India
As per section 5(2)(b) of the act, the total income of a non- resident also included all income which accrues or arises or deemed to accrue or arise in India (as per section 9) to the non-resident, If the income is deemed to accrue or arise in India, then the payer is liable to withhold taxes in India.

What covers under section 9 of the act

Section 9(1)(ii): Income which falls under the head salary, if it is earned in India i.e. when the services rendered in India tds will deduct u/s 192.
Section 9(1)(iiii): salary payable by central government to a citizen of India for services rendered outside India.
Section 9(1)(iv): dividend paid by an Indian company outside INDIA.
Section 9(1)(v): interest payable by a Resident except such funds used for business or profession carried by such person outside India or fund used for any purpose of making or earning income from any source outside India.
Section 9(1)(vi): royalty payable by a Resident except when such royalty payment used for purposes of a business or profession carried on by such person outside INDIA or purpose for making or earning any income from any source outside INDIA.
Section 9(1)(vii): fees for technical services payable by a Resident except when such fees for technical services used for purposes of a business or profession carried on by such person outside INDIA or purpose for making or earning any income from any source outside INDIA.
Section 9(1)(viii): any gift paid by a resident to non-resident, here gift includes in form of sum of money or any property situate in India transferred and include transfer of asset without adequate consideration, if difference between fair market value and actual consideration is exceed 50000. But gift from relative is excluded.
Section 9(1)(i): any other payment by resident to non-resident except covered above accruing or arising, whether directly or indirectly, through or form
1. Business connection in India
2. Property in India
3. Asset or source of income in India
4. Transfer of a capital asset situated in India

Rate of TDS:

TDS u/s 195 is also required to withheld at the time of making provision on accrual basis when the payee is identified and amount is ascertainable.]

As per section 90(2) the provisions of the act rate decided or the DTAA, whichever is more beneficial to the assessee shall be applied.

Surcharge and Education Cess: Not required to be added separately if the rates mentioned in DTAA are applied

Divident-20%
Royalty-10%
Fees for technical services-10%
Interest (other than 194LB/194LC/194LD)-20%
Foreign company/Non-resident having Permanent Establishment in INDIA payment for royalty and fees for technical service-40%

The above rates shall be increased by education cess@ 4% and applicable surcharge to corporate/ non-corporate assessee.

Lower/Nil deduction certificate application by either payer or payee u/s 195(2) or 195(3) or 197

Form 15CA & Form 15CB:

When a person desires to make any payment or remit any money to non-resident, the bank will require to check whether the tax was paid or not, if not paid; it will be checked if it is certified by the CA or Assessing officer. But there are at least 33 types of foreign remittance where assessee do not require any submission of form 15CA or form 15CB.
Tax deducted at source (TDS)

Form 15CA: Undertaking by the person making the remittance to non-resident.

Form 15CB: Chartered accountant certificate

These forms will file through e-filling form, this is starting of an effective information processing system which may be utilized by income tax department to freely track the foreign remittances and their source to determine tax liability even financial institutions are now more vigilant in seeking such form before remittance is effected
Form 15CA has 4 parts; A, B, C, D

Analysis: A person responsible for making a payment to non-resident or foreign company

Situation 1: when payment made is below 5 lakhs

Information is required in Part A of Form 15CA

Situation 2: when payment made exceeds 5 lakhs

Part B of form 15CA

CA certificate in form 15CB

Part C of form 15CA

Situation 3: when the payment made is not chargeable to tax under IT act

Part D of form 15CA
Remittance by an individual to non-resident, it does not require prior approval of RBI (as per provision of FEMA ACT, 1999 read with schedule III to foreign exchange (current account transaction) Rules, 2000 than no submission of information is required

There is list of 33 foreign remittance where you do not require any submission of form 15CA or form 15CB under rule 37BB.

194LB: TDS on interest from infrastructure debt fund

Any person makes payment of interest to non-resident/ foreign company

It will be deducted at the time of credit of such income to the account of the payee or at the time of payment either in cash or cheque or draft or any other mode whichever is earlier

Rate of TDS shall be 5% of such gross interest and HEC@ 4% plus surcharge will levy if applicable.
The provision of section 206AA shall not apply to a non-resident or foreign company (absence of PAN 20% TDS will levy)

Tax cannot be deducted at lower rate so section 197 will not applicable

194LC: TDS on interest income from Indian company or business trust

If an Indian company or a business trust pays income by way of interest to non-resident or foreign company has deduct tds under this section.

Up to 1st July 2023 issue loan agreement and long-term bond including infrastructure bond as approved by the CG in this behalf, long term bond or rupee nominated bond, which is listed only on recognized stock exchange located in any International financial Services Centre than rate of tax is 4% plus HEC 4% plus surcharge if applicable.
But long-term bond or rupee nominated bond, which is listed only on recognized stock exchange located in an IFSC and such bond issue on or after 1st July, 2023 than rate of tds is 9% plus HEC 4% plus surcharge if applicable
The provisions of section 206AA shall not apply in respect of payment of interest on long term infrastructure bonds.

Rate of interest shall not exceed the rate as may be notified by Central government in this behalf.

194LD: TDS on interest income on certain Bonds/Government Securities

Any person paying to a person being foreign Institutional Investor or a Qualified Foreign Investor any income by way of interest.

Up to 1st July investment in rupee denominated bond of an Indian company or Government Security or investment in municipal debt securities

Rate of TDS shall be 5% plus HEC 4% plus surcharge if applicable

Rate of interest shall not exceed the rate as may be notified by the Central Government in this behalf.

The provision of section 206AA shall not apply.

Author

CA Ankita Bothra