Section 195 Explained: TDS on Payments to NRIs (2025 Guide)
Introduction
With globalization and increasing cross-border transactions, it’s common for Indian residents to make payments to Non-Resident Indians (NRIs) for property purchases, rent, consultancy, interest, or dividends. However, these payments attract TDS under Section 195 of the Income Tax Act.
Unlike TDS rules for residents, Section 195 TDS for NRIs has its own rates, compliance processes, and responsibilities. This 2025 guide by Makwana Sweta & Associates, leading Chartered Accountants in Mumbai, helps you navigate this crucial aspect with clarity.
What is Section 195?
Section 195 mandates tax deduction at source (TDS) on any sum (other than salary) paid to a Non-Resident, if such amount is chargeable to tax in India. The responsibility lies with the payer (resident or NRI) to deduct the tax.
Example: If you’re buying property from an NRI, or paying them rent, consultancy fees, or interest, you must deduct TDS before making payment.
When Does Section 195 Apply?
- Sale of property by NRI
- Interest payments to NRI
- Rent paid to NRI
- Dividend or royalty to NRI
- Technical/professional service fees
- Capital gains remittances
If the payment is taxable in India, TDS must be deducted regardless of the amount.
TDS Rates Under Section 195 (FY 2024-25)
| Nature of Payment | TDS Rate (Approx)* |
|---|---|
| Property Sale (Long Term Capital Gains) | 20% + surcharge + cess |
| Property Sale (Short Term Capital Gains) | 30% + surcharge + cess |
| Interest (non-government securities) | 20% |
| Rent (plant/machinery) | 10% |
| Technical/Professional Fees | 10% |
*Rates vary depending on DTAA (Double Taxation Avoidance Agreement) and income slab. Use Form 15CB/15CA or consult a CA for exact rate.
Compliance Steps for Deducting TDS Under Section 195
- Obtain TAN: You must have a valid Tax Deduction Account Number.
- Determine Rate: Use DTAA provisions or Income Tax Act, whichever is more beneficial to the NRI.
- File Form 15CA: Declaration of remittance.
- Get Form 15CB: CA certificate certifying taxability of payment.
- Deposit TDS: Pay the TDS online via Challan ITNS 281.
- File TDS Return (Form 27Q): Quarterly return specifying details of NRI payments.
- Issue TDS Certificate (Form 16A): Provide this to the NRI payee.
Form 15CA & 15CB: What You Must Know
- Form 15CA: Mandatory for all remittances chargeable to tax.
- Form 15CB: Required if payment exceeds Rs. 5 lakh in a financial year.
These forms ensure proper disclosure and tax compliance before sending money abroad.
Consequences of Non-Compliance
- Interest @1%/1.5% per month on delay
- Penalty under Section 271C and 271H
- Disallowance of expenses for businesses
- Prosecution in extreme cases
NRI Property Sale Example
If you’re buying property worth Rs. 1.5 crore from an NRI:
- Check the nature of capital gain (short or long term)
- Calculate TDS at 20% + surcharge/cess (approx 23.92%)
- Deduct TDS (~Rs. 35.88 lakh)
- File 15CA/15CB
- Deposit TDS
- Provide Form 16A to NRI
Tips for Buyers or Payers
- Never skip TDS assuming the NRI will pay tax later
- Work with a CA to determine accurate tax liability
- Use DTAA relief where applicable to lower TDS
- Track timelines for filing and deposit
Final Words
Whether you’re an individual buying property from an NRI, or a company making remittances, Section 195 TDS for NRIs must be handled with precision. Seek guidance from professionals like CA Sweta Makwana & Associates, trusted experts for NRI Taxation in Mumbai, to ensure 100% compliance.