TaxTMI 
TaxTMI 
Changing Landscape of TDS on Payments to Non-Residents in Indian Tax Law : Clause 393(2)[Table: S.No.17] of the Income Tax Bill, 2025 Vs. Section 195 of the Income-tax Act, 1961
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise specified), and on any other sum chargeable under the Act (excluding income chargeable under the head "Salaries") to non-residents. Section 195 of the Income-tax Act, 1961, is the corresponding provision in the existing law and has for decades been the cornerstone of the TDS regime applicable to payments made to non-residents. The provision is widely regarded as a critical anti-avoidance measure, ensuring that tax due on income accruing, arising, or deemed to accrue or arise in India to non-residents is collected at the earliest point of payment or credit. The proposed Clause 393(2)[Table: S.No.17] essentially seeks to modernize, clarify, and possibly rationalize the TDS obligations in respect of payments to non-residents, while also al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Table S.No. 17 Sl.No. Nature of Income or Sum Payee Payer Rate 17 Any interest (not being interest referred to against serial numbers 2, 3, 4 and 5) or any other sum chargeable under the provisions of this Act, not being income chargeable under the head "Salaries". Any non-resident (not being a company) or a foreign company. Any person. Rates in force. 2. Key Components * Nature of Payment: The provision is residuary in nature, covering any interest (other than those specifically dealt with in serial numbers 2, 3, 4, and 5 of the table) and any other sum chargeable under the Act, except salaries. * Payee: The provision applies to payments made to any non-resident (individual or entity), including foreign companies....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uspense account is deemed to be credit to the payee's account. * Grossing up provisions where tax is borne by the payer. 5. Interaction with DTAAs The "rates in force" expression includes the rate as per the relevant DTAA, if applicable and more beneficial to the assessee, subject to compliance with procedural requirements (such as furnishing of tax residency certificate, Form 10F, etc.). Practical Implications 1. For Payers * Payers must identify whether the payment falls within the scope of S.No. 17 or is covered by a specific serial number (e.g., interest on specific bonds). * They must determine the residential status of the payee and the chargeability of the sum under the Act. * Payers must apply the correct rate, consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to interpretational issues, especially in cases involving composite contracts or payments for services rendered both within and outside India. * Determining the chargeability of a payment (e.g., in cases of reimbursement, cost-sharing, or payments for offshore services) can be complex. * Procedural compliance (such as obtaining lower/nil deduction certificates or determining the appropriate proportion chargeable) may be burdensome for both payers and payees. Comparative Analysis with Section 195 of the Income-tax Act, 1961 1. Textual Comparison Section 195(1) provides: Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....recognize that not all payments to non-residents are fully chargeable to tax in India. Section 195(2) allows the payer to apply to the Assessing Officer to determine the appropriate proportion of the sum chargeable, so that tax is deducted only on that portion. Clause 393(2) does not explicitly restate this mechanism but, read with the general procedural framework, is likely to continue to allow such applications. 3. Certificates for Nil or Lower Deduction Section 195(3)-(5) allows the payee to apply for a certificate for receipt of sums without deduction or with lower deduction, subject to prescribed rules. Clause 393, as part of its overarching TDS regime, provides for similar mechanisms for declarations and certificates for non-deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew provision appears to consolidate and rationalize various TDS obligations, potentially making compliance simpler for taxpayers and administrators. * The explicit tabulation of exceptions and threshold limits in Clause 393 may enhance certainty and reduce litigation. * The new clause may address certain interpretational issues that have arisen u/s 195, such as the "sum chargeable" concept, by providing more detailed guidance. 9. Potential Areas of Concern * The broad language of "any other sum chargeable" remains, and could still give rise to disputes regarding the scope of TDS, especially in cross-border service arrangements, software payments, and composite contracts. * The procedural burden of determining chargeability, obtaini....