Clarification contained in Circular No. 155, dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at source in the case of non-resident whose tax liability is to be borne by payer

Clarification on Tax Deduction Process for Non-Resident Payments u/s 195; Non-Compliance Leads to Penalties and More.

Circular No. 155, reiterated in 1983, clarifies the tax deduction process under section 195 for payments to non-residents, where the payer bears the tax liability. It mandates grossing up the net payment to determine the taxable amount, ensuring tax is deducted on the grossed-up amount and paid to the Central Government. Non-compliance results in penalties, interest, and potential imprisonment under sections 201, 221, and 276B. The circular emphasizes the statutory obligation to deduct tax at source for sums like royalties and technical service payments, reinforcing adherence to tax laws to avoid legal consequences.