If you are making any payment to a non-resident — buying property from an NRI seller, paying a foreign contractor for services, remitting interest on a foreign loan, or settling a royalty — the legal obligation to deduct tax at source sits with you, the payer. Not the recipient. You. This is what Section 195 TDS on NRI payments of the Income Tax Act 1961 says, and it is one of the most commonly misunderstood compliance obligations in Indian tax. The NRI receiving the money is not responsible for ensuring TDS is deducted. If you miss it, the consequences — penalties, interest, and disallowance of your expense deduction — fall on you alone.
This post explains exactly who must comply, what rates apply, and how the Form 15CA and 15CB filing workflow works before any remittance leaves India.
Quick answer
Under Section 195 of the Income Tax Act 1961, any person making a payment to a non-resident that is chargeable to tax in India must deduct TDS before the payment is made, deposit it with the government, and file Form 27Q (the quarterly TDS return for non-residents). A Form 15CA declaration — and often a Form 15CB certificate from a Chartered Accountant — must also be filed online before the remittance is processed by the bank.
Before acting, check:
- Whether the specific payment is chargeable to tax in India — not all foreign payments are, and deducting TDS where none is due creates its own complications.
- Whether the non-resident has provided a Tax Residency Certificate (TRC) and Form 10F to claim a lower Double Tax Avoidance Agreement (DTAA) rate.
- Whether the payment falls in one of the 33 categories listed in Rule 37BB of the Income Tax Rules 1962 that are exempt from the Form 15CA filing requirement.
📌 Note: With effect from 1 April 2026, Forms 15CA and 15CB have been renumbered as Forms 145 and 146. The requirements, the ₹5 lakh threshold, the four-part structure, and the Rule 37BB exemptions are all unchanged — only the form numbers differ, and the older 15CA/15CB filings remain valid for remittances initiated before that date. This post uses the widely recognised 15CA/15CB labels throughout.
The Obligation Is on You, the Payer
Section 195 uses broad language deliberately. It applies to “any person” making “any sum” to “any non-resident” — with the key qualifier that the sum must be chargeable to tax in India under the Act. The word “any person” means it applies to individuals, companies, firms, and trusts alike. A salaried individual buying a flat from an NRI seller is just as much within Section 195 as a listed company paying royalties to a US parent.
The payer’s failure to deduct or deposit TDS triggers consequences under Section 201 of the Income Tax Act 1961: the payer is treated as an “assessee in default.” This carries interest at 1% per month for non-deduction and 1.5% per month for deducting but not depositing. Additionally, under Section 40(a)(i), any expense paid to a non-resident without TDS deduction is disallowed in the payer’s own income tax computation — meaning the payer loses the business deduction and also owes interest.
There is a separate penalty for the filing itself. Under Section 271-I of the Income Tax Act 1961, failing to furnish Form 15CA or 15CB, or furnishing inaccurate particulars in it, attracts a penalty of ₹1 lakh. This applies even where the TDS was correctly deducted and the remittance correctly made — because the default being penalised is the failure to file the form, not the failure to pay the tax. The point for a payer is that getting the TDS right is not enough; the declaration must be filed too.
Under the Income Tax Act 2025, which applies from AY 2026-27 onward, the withholding framework for payments to non-residents has been carried forward. The section references under the 2025 Act should be confirmed against the current bare Act, as provisions have been renumbered.
What Section 195 Covers
Section 195 covers any sum paid or credited to a non-resident that is chargeable to income tax in India. Common payment categories include:
Interest on loans, ECBs (External Commercial Borrowings), and trade credits. Royalties — payments for use of patents, copyrights, trademarks, software licences, and similar rights. Fees for Technical Services (FTS) — payments for managerial, technical, or consultancy services rendered. Capital gains on transfer of Indian assets (for example, an NRI selling property or shares). Dividends on shares in Indian companies (though the company often deducts this separately). Rent and lease payments on Indian property to non-resident owners.
Payments that are not chargeable to tax in India — for example, payments made to a non-resident for services rendered entirely outside India with no Indian source — are not subject to Section 195. However, determining whether a payment is “chargeable to tax in India” is itself a legal question, and getting it wrong by not deducting when required is costly. When in doubt, obtain a CA’s opinion or a lower/nil TDS certificate from the Assessing Officer under Section 197.
TDS Rates Under Section 195 TDS NRI Payments
There is no single flat rate under Section 195. The applicable rate depends on the nature of the payment:
For interest payments (other than interest on securities), the domestic withholding rate is 20% (plus applicable surcharge and 4% health and education cess). For royalties and fees for technical services, the domestic withholding rate is currently 20% (plus applicable surcharge and 4% health and education cess) for most such payments — though a lower DTAA rate, often in the 10% to 15% range, typically applies in practice where the non-resident furnishes a TRC and Form 10F. The exact domestic rate for a specific payment should be confirmed against the current bare Act, as this rate has been revised over time.
For capital gains on property, the rate follows the capital gains classification: 12.5% for long-term gains and 30% for short-term gains (plus surcharge and cess). For other income, the residual rate is 30% plus surcharge and cess.
Surcharge applies on the TDS amount at 2% where the payment exceeds ₹1 crore but does not exceed ₹10 crore, and at 5% where it exceeds ₹10 crore, for non-corporate non-residents. The 4% health and education cess applies in all cases.
DTAA: When a Lower Rate Applies
If India has a Double Tax Avoidance Agreement with the non-resident’s country of residence, and the DTAA provides a lower withholding rate on the type of payment, the payer may deduct TDS at the lower DTAA rate instead of the domestic rate. To apply the treaty rate, the non-resident must provide:
A valid Tax Residency Certificate (TRC) issued by the tax authority of their country of residence for the relevant financial year. A completed Form 10F — a self-declaration containing the non-resident’s details, PAN (if applicable), and the period covered by the TRC.
Without these documents, the payer must apply the domestic rate regardless of the applicable treaty. The payer is not required to verify the accuracy of the TRC or Form 10F, but must ensure they are obtained and retained before applying the lower rate.
Form 15CA and 15CB: The Remittance Filing Workflow
Before any foreign remittance is processed by a bank in India, the payer must furnish Form 15CA online on the Income Tax e-filing portal. This is a declaration of the nature of the payment and the TDS deducted. The form has four parts, and which part applies depends on the payment:
Part A: For payments below ₹5 lakh in aggregate during the financial year (where the payment is chargeable to tax). No Form 15CB is needed.
Part B: For payments that are covered by an order under Section 195(2), Section 195(3), or Section 197 (lower/nil TDS), and for which a certificate has been obtained from the Income Tax Department.
Part C: For payments above ₹5 lakh (or where the payer wants to apply a DTAA rate) that require a Form 15CB — a certificate from a Chartered Accountant confirming the nature of the payment, the applicable rate, and the TDS amount. The CA examines the remittance and certifies that TDS has been correctly determined.
Part D: For payments that are not chargeable to tax in India at all (no TDS required). No Form 15CB is needed, but the payer must still file the declaration.
The bank will not process a foreign remittance without the Form 15CA acknowledgement number (and Form 15CB, where required). This makes the filing a practical gate, not just a legal one.
How to Handle a Section 195 TDS Deduction Step by Step
- Determine whether the payment is chargeable to tax in India. Analyse the nature of payment, the source of income, and whether any exemption applies under domestic law or treaty.
- Obtain TRC and Form 10F from the non-resident if a DTAA rate is to be applied.
- Compute TDS at the applicable rate (domestic or DTAA), including surcharge and cess.
- Get Form 15CB from a CA if the payment exceeds ₹5 lakh and is chargeable to tax.
- File Form 15CA on the Income Tax e-filing portal before instructing the bank to remit.
- Deduct the TDS from the payment and remit only the net amount to the non-resident.
- Deposit the TDS with the government by the 7th of the following month (or by April 30 for March deductions) using Challan ITNS 281.
- File Form 27Q — the quarterly TDS return for payments to non-residents — by the due date for the relevant quarter.
- Issue TDS certificate in Form 16A to the non-resident within 15 days of the due date for furnishing Form 27Q.
When You Should Not Proceed Without a CA Certificate
When the payment is large and the nature is ambiguous. If there is genuine doubt about whether the sum is chargeable to tax in India — for example, a payment for services where it is unclear whether they were rendered in India or abroad — proceed with Form 15CB. The CA’s certificate documents the reasoning. If the position is later challenged, the payer’s reliance on professional advice is a relevant factor.
When a DTAA rate is being applied. Applying the wrong treaty rate — or applying a treaty rate without verifying that the NRI’s country of residence is actually covered — creates liability for the payer. A Form 15CB forces a CA to verify the applicable rate, which reduces the risk of error.
When the payment involves royalties or FTS with an Indian element. The definition of “royalty” in Section 9(1)(vi) and “fees for technical services” in Section 9(1)(vii) of the Income Tax Act 1961 is broad and has been the subject of extensive litigation. Software licence fees, cloud service charges, and technical support fees from a foreign vendor can fall within these definitions even if the vendor is offshore. Do not assume such payments are free of TDS without professional analysis.
When the NRI seller of property has not obtained a lower TDS certificate. In property purchases from NRIs, buyers routinely underestimate the TDS liability by applying capital gains rates without adding surcharge and cess. The resulting shortfall makes the buyer liable for the unpaid amount, with interest, even after the property transaction is complete.
Documents to Keep Ready
- ✅ Contract or invoice describing the nature of the payment
- ✅ Tax Residency Certificate (TRC) from the non-resident, if claiming DTAA rate
- ✅ Form 10F completed and signed by the non-resident
- ✅ Form 15CB signed by the Chartered Accountant (where required)
- ✅ Form 15CA acknowledgement number from the e-filing portal
- ✅ Challan ITNS 281 receipts confirming TDS deposit
- ✅ Form 27Q — quarterly TDS return filed for the relevant quarter
- ✅ Form 16A issued to the non-resident as TDS certificate
- ✅ Section 197 certificate, if lower TDS rate was approved by the Assessing Officer
Final Takeaway
Section 195 TDS is not the non-resident’s problem — it is the payer’s. The obligation to deduct, deposit, and file sits entirely with the person making the payment, regardless of what the contract says. The rates vary by payment type, treaty availability, and documentation. Form 15CA and 15CB are not optional paperwork — the bank will not process the remittance without them. Plan the TDS analysis before the payment is made, not after, because correcting a missed deduction is significantly more expensive than getting it right the first time.
Section 195 TDS compliance question or need help with Form 15CA, 15CB, or the quarterly Form 27Q return? eTaxMate can help you review the nature of your payment, determine the applicable rate, prepare the CA certificate, and handle the full filing correctly.
This blog post is for general information only and does not constitute professional advice. Tax laws are subject to change and their application depends on individual facts and circumstances. Readers should consult a qualified professional before taking any action based on this content. eTaxMate accepts no liability for any action taken based on the information in this post.
Frequently Asked Questions
1. Who is responsible for deducting TDS under Section 195?
The payer — the person or entity making the payment to the non-resident — is solely responsible for deducting TDS under Section 195. This applies whether the payer is an individual, a company, a firm, or a trust. The non-resident recipient has no obligation to ensure TDS is deducted. If the payer fails to deduct, they are treated as an assessee in default under Section 201 and face interest and penalties.
2. What is the TDS rate under Section 195 for NRI payments?
There is no single rate. The rate depends on the nature of the payment: 20% for interest, 10% or 20% for royalties and fees for technical services (depending on the agreement), 12.5% for long-term capital gains on property, and 30% for most other payments — all plus applicable surcharge and 4% health and education cess. A lower rate may apply if the non-resident qualifies for a Double Tax Avoidance Agreement benefit and provides a valid Tax Residency Certificate and Form 10F.
3. What is Form 15CA and when is it required?
Form 15CA is a declaration filed by the payer on the Income Tax e-filing portal before making any foreign remittance. It declares the nature of the payment and the TDS deducted. It is required for most payments to non-residents that are chargeable to tax in India. For payments below ₹5 lakh in aggregate during a financial year, only Form 15CA Part A is required. For larger payments, Form 15CB from a Chartered Accountant is also needed. The bank will not process the remittance without a Form 15CA acknowledgement.
4. What happens if I do not deduct TDS under Section 195?
The payer becomes an “assessee in default” under Section 201 of the Income Tax Act 1961. This attracts interest at 1% per month from the date TDS was due to the date it was deducted, and 1.5% per month from the deduction date to the deposit date. Additionally, under Section 40(a)(i), the expense payment is disallowed in the payer’s own income tax return, meaning the payer loses both the deduction and pays interest on the TDS shortfall.
5. Can I deduct TDS at a lower rate if India has a tax treaty with the NRI’s country?
Yes, if the Double Tax Avoidance Agreement between India and the non-resident’s country of residence provides a lower withholding rate for the type of payment. To apply the treaty rate, the non-resident must provide a valid Tax Residency Certificate (TRC) for the relevant year and a completed Form 10F before the payment is made. Without these documents, the payer must apply the domestic rate under Section 195, regardless of the treaty.
6. Do I need Form 15CB for every payment to a non-resident?
No. Form 15CB — a certificate from a Chartered Accountant — is required only when the payment is chargeable to tax in India and exceeds ₹5 lakh in aggregate during the financial year (Form 15CA Part C). For payments below ₹5 lakh (Part A) or covered by a lower TDS order from the Assessing Officer (Part B), or for non-taxable payments (Part D), Form 15CB is not required. However, obtaining Form 15CB for any large or ambiguous payment is a good practice, as it documents the payer’s due diligence.