Updated on November 28, 2024 01:25:33 PM
In India, the taxation of professional and technical fees paid to non-residents (NRIs) is governed by Section 195 of the Income Tax Act, 1961. This section mandates that Tax Deducted at Source (TDS) is required to be deducted on payments made to non-residents for services rendered in India, including professional and technical services.
Professional fees: These refer to fees paid for services rendered by professionals like lawyers, doctors, architects, accountants, etc.
Technical fees: These are payments made for services of a technical nature, such as engineering, scientific, or consultancy services.
Any person (Resident or Non-Resident of India) who is liable to pay any sum [except salaries (TDS to be deducted u/s 192), interest payable u/s 194LB, 194LC & 194LD] to Non-Resident Indians (NRI) are required to deduct TDS u/s 195, TDS on Professional and Technical fees to Non-resident.
The applicable TDS rate under Section 195 depends on whether the payment made to the non-resident is considered income in India and if any Double Taxation Avoidance Agreement (DTAA) exists between India and the non-resident's home country.
Standard TDS Rate: The default TDS rate for professional and technical fees paid to non-residents is 20% (plus applicable surcharge and cess). However, this rate can vary based on the provisions of the DTAA.
DTAA Benefits: If a DTAA exists between India and the non-resident's country of residence, the TDS rate may be reduced as per the treaty's provisions. In such cases, the non-resident must provide a Tax Residency Certificate (TRC) to avail of the reduced rate.
The time for deduction and deposition of TDS u/s 195, TDS on professional and technical fees to NRIs is given below:-
The TDS u/s 195, TDS on professional and technical fees to NRIs is deducted at the time of:-
Form 15CA/15CB: Before making the payment to the non-resident, the payer must file Form 15CA and Form 15CB with the Income Tax Department to report the payment and ensure compliance.
The payer must also deposit the TDS with the government and issue Form 16A to the non-resident as a proof of TDS deduction.
Where the Non-resident Indian seller believes that no amount or only a partial amount (other than salary) is taxable in India and he believes that TDS is to be done at a Lower/Nil rate he may make an appeal to Assessing officer (AO) under Form 13 for obtaining a Lower deduction/ Nil deduction certificate under section 197. Now, AO will enable the deductor or payer to deduct the TDS at a much lower rate.
Following are the consequences of non-compliance with section 195, TDS on professional fees to NRIs:-
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Section 195 plays a key role in regulating the tax compliance for payments made to non-residents for professional and technical services. It ensures that taxes are deducted at source and remitted to the government, providing a transparent mechanism for taxing income earned by non-residents in India. Understanding the applicable TDS rates, exemptions, and filing requirements is essential for businesses or individuals making such payments to avoid legal complications.
The payer (i.e., the Indian company, individual, or entity making the payment) is responsible for deducting TDS at the time of making the payment to a non-resident. The non-resident receiving the payment does not have the obligation to deduct tax. It is the payer’s responsibility to ensure compliance with Section 195.
No, Section 195 does not provide a minimum threshold limit for TDS on payments to non-residents. This means that TDS is applicable on all payments made to non-residents for professional, technical, or other services, regardless of the amount.
For proper compliance, the following documents may be required:
Non-compliance with Section 195, such as failure to deduct TDS or late payment of TDS, can attract: