Section 195 · FY 2026-27
TDS on Payments to Non-Residents
Cross-border payments to non-residents (varies, often 10-40%).
What Section 195 covers
Section 195 covers TDS on any sum chargeable to tax paid to a non-resident. Rates depend on the nature of payment (royalty, FTS, interest, capital gains) and any applicable DTAA (Double Taxation Avoidance Agreement) treaty between India and the recipient's country. Common rates: 10% on royalty/FTS, 20% on interest (lower under DTAA).
Threshold
No threshold — applicable on the first rupee paid to a non-resident.
Who deducts and who is deducted from
Deductors (who must deduct): Any Indian person making payment to a non-resident — covers all payers, not just companies.
Deductees (who has TDS deducted): Non-resident individuals, foreign companies, and other non-resident entities.
Worked example
A payment of Rs. 1,00,000 under Section 195:
- TDS rate: 10%
- TDS deducted: Rs. 10,000
- Net amount paid: Rs. 90,000
Assumes DTAA rate of 10% on FTS. Without DTAA, the rate could be 20-40% depending on nature.
Free Tool
Calculate TDS for Section 195
The free TDS calculator handles 194J, 194C (individual + company), 194H, and 194O — applies the right rate, threshold check, and the no-PAN 20% rule under Section 206AA.
Open the free calculator →Form 26AS and Form 16A
TDS deducted under Section 195 appears in your Form 26AS after the deductor files their quarterly TDS return (Form 26Q for non-salary TDS). The deductor is also required to issue you a Form 16A certificate within 15 days of the 26Q filing due date.
When filing your ITR, claim the TDS credit in Schedule TDS2 using the deductor's TAN. The system auto-populates this from 26AS — verify each entry against your own records.
Form 26Q quarterly filing dates (deductor obligation)
Form 26Q is the quarterly statement of TDS for non-salary payments (the form your client files reporting the TDS they deducted from you). Knowing these dates tells you when your 26AS entry should appear and when to chase a missing Form 16A.
| Quarter | Period | 26Q due date | Form 16A due date |
|---|---|---|---|
| Q1 | Apr–Jun | 31 July | +15 days from 26Q due |
| Q2 | Jul–Sep | 31 October | +15 days from 26Q due |
| Q3 | Oct–Dec | 31 January | +15 days from 26Q due |
| Q4 | Jan–Mar | 31 May | +15 days from 26Q due |
DTAA treaty rates — top 8 jurisdictions
When the recipient is tax-resident in a country with an India DTAA (Double Taxation Avoidance Agreement), treaty rates often undercut India's domestic 10–40% rates under Section 195. The recipient must furnish a valid Tax Residency Certificate (TRC) plus Form 10F filed on the Income Tax e-filing portal to claim the treaty benefit. Beneficial-ownership tests apply on top.
| Country | FTS rate | Royalty rate | Notes |
|---|---|---|---|
| United States | 15% | 15% | Article 12 (royalties + FTS). Lower rates for some classes of equipment royalty. |
| United Kingdom | 15% | 10%/15% | Article 13. 10% for equipment royalty; 15% for other royalty + FTS. |
| Singapore | 10% | 10% | Article 12. Among the lowest treaty rates — major destination for Indian outbound FTS. |
| United Arab Emirates | 10% | 10% | Article 12. UAE has no domestic income tax — TRC is critical to claim the treaty benefit. |
| Australia | 10% | 10%/15% | Article 12. 10% for industrial/scientific equipment; 15% for other royalty + FTS. |
| Canada | 10%/15% | 10%/15% | Article 12. Lower rate for specified classes of FTS / royalty; higher for general. |
| Netherlands | 10% | 10% | Article 12. MFN clause may reduce this further — check current Indo-Dutch protocol. |
| Germany | 10% | 10% | Article 12. Single rate for FTS, royalty, and equipment payments. |
These are headline treaty rates as published on the Income Tax Department's international-taxation page. Always cross-check the live treaty text before applying, since protocol amendments (e.g., the Indo-Netherlands MFN clause) periodically alter these.
Section 197 Lower-Deduction Certificate (LDC)
Most freelancers under Section 44ADA over-pay TDS — 10% deducted under 194J against a final effective tax rate of 5–7% (after 50% presumptive + 87A rebate at the new-regime Rs. 12 lakh threshold). A Section 197 Lower Deduction Certificate from the Assessing Officer instructs your clients to deduct at the lower rate (or nil) — eliminating the year-long refund chase.
How to apply:
- Log in to the TRACES portal (separate login from the e-filing portal — register if you haven't).
- File Form 13 online with: estimated income for the FY, projected tax liability, prior-year ITR, and the list of deductors (TANs and estimated payments) you want the certificate for.
- The AO reviews and issues the certificate within ~30 days (often faster for clean taxpayers with 2–3 years of clean ITR history). Certificate is valid for the FY of issue.
- Share the certificate with each deductor before their next payment — they apply the lower rate from the next deduction onwards.
Best applied for early in the FY (April–June) so the lower rate benefits a full year of deductions. Late applications still save the unrefunded part of remaining payments.
Related TDS sections
- Section 194J — TDS on Professional Fees and Technical Services — Most common section for freelance professional billings (10%).
- Section 194O — TDS by E-Commerce Operators — E-commerce platforms (Upwork-like Indian equivalents) deducting 1%.
Related TDS terms
Plain-English definitions for the concepts behind this section:
- Section 194J — TDS on professional and technical service fees — 10% / 2% with Rs. 50K threshold.
- Form 26AS — Consolidated annual tax statement showing all TDS, advance tax, and refunds.
- Form 16A — TDS certificate issued by deductors for non-salary TDS (e.g., 194J, 194C).
- AIS (Annual Information Statement) — Comprehensive annual statement showing all financial transactions reported to the IT department.
- TDS (Tax Deducted at Source) — Mechanism where the payer withholds and deposits income tax on the payee's behalf.
After TDS is deducted — your 4-step compliance workflow
- Verify in Form 26AS within 30 days. The deductor files Form 26Q quarterly (by 31 Jul / 31 Oct / 31 Jan / 31 May for Q1-Q4). Your TDS appears in 26AS only after that filing. Missing entries point to a deductor who hasn't filed — chase early, not at ITR time.
- Collect Form 16A from each deductor. Must be issued within 15 days of the Form 26Q due date. Keep certificates for 7 years (audit limitation period).
- Reconcile against your own invoice records. Match each TDS entry to your invoice. Mismatches (wrong amount, wrong section, missing entry) require a written request to the deductor for correction.
- Claim in ITR Schedule TDS2 using the deductor's TAN. The portal auto-populates from 26AS — verify each row before submitting. Mismatched claims are the #1 trigger for tax-portal notices.
HourSlip
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Key rules to remember
- No PAN = 20% TDS under Section 206AA of the Income Tax Act, 1961. Always share your PAN with deductors before the first invoice clears.
- Aadhaar-PAN must be linked for your PAN to be operative. An inoperative PAN triggers 20% TDS even if you shared it. Link via the e-filing portal — late linking fee is Rs. 1,000.
- Section 206AB — higher rate for ITR non-filers. If you haven't filed ITR for 2 consecutive years AND your TDS / TCS in each of those years was Rs. 50,000 or more, deductors must apply double the rate (or 5%, whichever is higher) under Section 206AB. The deductor checks this through the Income Tax department's public compliance utility before paying — there's no way around it except filing your ITR.
- TDS is on the value EXCLUDING GST per CBDT Circular 23/2017 dated 19 July 2017, where GST is shown separately on the invoice. Example: invoice Rs. 1,00,000 + 18% GST = Rs. 1,18,000 total → TDS @ 10% under 194J is on Rs. 1,00,000 (= Rs. 10,000), not on Rs. 1,18,000. If GST is not shown separately, TDS applies on the gross.
- Lower deduction certificate available under Section 197of the Income Tax Act, 1961 if your final tax liability will be lower than the TDS being deducted. Most freelancers under 44ADA over-pay (TDS @ 10% vs effective tax ~5-7%). Apply online via the TRACES portal — valid for the FY of issue.
- Surcharge applies to TDS for high-income deductees: 10% surcharge above Rs. 50 lakh, 15% above Rs. 1 crore, 25% above Rs. 2 crore (new regime cap), and 37% above Rs. 5 crore (old regime). Deductors of Section 195 payments must apply the relevant surcharge slab.
Sources