All payments to NRIs: 20-30% TDS default. DTAA via TRC + Form 10F: drops to 10-15%. Property sale + rent + interest + royalty + dividends. Form 26QB/27Q quarterly returns.
SECTION 195 = TDS by PAYER on ALL payments to NRI. RATES: (1) INTEREST: 30% (default). 20% (NRO deposits). 10-15% via DTAA. (2) PROFESSIONAL FEES/ROYALTY/TECHNICAL SERVICES: 10% (DTAA) — 25% (default). (3) RENT: 30% (residential). (4) CAPITAL GAINS on property sale: 20% (LTCG with indexation) or 12.5% un-indexed. (5) DIVIDENDS: 20% (default). 10-15% via DTAA. (6) SALARY: 30% (default). HIGH RATES vs resident TDS! DTAA via TRC + Form 10F crucial to reduce.
DTAA REDUCTION PROCESS: (1) NRI obtains TRC from foreign tax authority. (2) Files Form 10F annually on Indian e-filing portal. (3) Provides TRC + 10F to Indian PAYER (bank, MF, AMC, tenant). (4) PAYER applies LOWER DTAA TDS rate. EXAMPLE: ₹10L property sale by NRI. (a) Default 195: 20% × ₹10L = ₹2L. (b) DTAA reduces (varies by country) — could be 10-15%. (c) US-India: 15%, UK-India: 15%, UAE-India: similar reduction. (d) NRI files ITR for refund if excess. STRATEGIC: TRC + 10F mandatory for tax-efficient NRI transactions.
NRI PROPERTY SALE TDS: (1) BUYER (regardless of resident/NRI) MUST deduct TDS at HIGHER rate (Section 195). (2) LTCG with indexation: 20%. (3) 12.5% un-indexed post-July 2024 option. (4) PURCHASE > ₹50L: also Section 194-IA 1% TDS (NRI seller too). (5) BUYER may need TAN registration. (6) PROCESS: (a) NRI provides PAN. (b) Compute TDS on sale value (not gain — important!). (c) Deposit TDS via Form 26QB. (d) Issue Form 16B to NRI seller. CRITICAL: NRI property buyers often miss this — significant penalty risk.
COMMON SCENARIOS: (1) RENTING TO NRI LANDLORD: tenant deducts 30% TDS. Form 27Q quarterly. (2) PAYING NRI CONSULTANT: 10% (DTAA) — 25% (default) TDS on fees. (3) NRI INTEREST on NRO: bank deducts 30% (or 10-15% via DTAA with TRC). (4) MAKING NRI PURCHASE PAYMENT: property buyer deducts 20-25%. (5) DIVIDEND TO NRI SHAREHOLDER: 20% (default) — DTAA lower. (6) ROYALTY/LICENSE PAYMENT: 10% (DTAA) — 25% (default). STRATEGIC: payer obtains NRI's PAN + TRC + Form 10F BEFORE payment. Else default highest rate.
COMPLIANCE STRATEGY: (1) IDENTIFY all NRI payments. (2) OBTAIN NRI's PAN + TRC + Form 10F. (3) APPLY appropriate DTAA rate. (4) DEPOSIT TDS via Form 26QB/27Q/26Q. (5) ISSUE Form 16B/16A to NRI. (6) FILE QUARTERLY return (Form 27Q for NRI payments). (7) RECONCILE in books. PENALTIES: (1) Late TDS: 1% per month. (2) Late deposit: 1.5% per month. (3) Disallowance Section 40(a)(ia). (4) Section 271C penalty. NRI SIDE: (1) File ITR for TDS refund if excess. (2) PAN mandatory. (3) Schedule 26AS reconciliation. (4) DTAA tax credit via Form 67 in foreign country. ENGAGE CA for any payment > ₹5L to NRI.