Over view of TDS provisions- chapter XVII, Collection & recovery of tax deduction at source 

        Provisions of WHT


Ø Advance collection of tax by WHT,

Ø Direct payment by the taxpayer

2. PART B - Forms of WHT/ TDS

Ø Section 192 to 196D

Ø Procedures of TDS Section 197 to 206AA

3. PART BB- Collection at source

Ø Section 206C to 206CA


Ø Section 207 to 219


Ø Section 220 to 232

6. PART F & G Interest / fee chargeable in certain cases

Ø Section 234A to 234E

WHT concept for nonresident

Ø Compliance procedures

Ø Determination and analysis

Ø Applicability of the provisions

Life-cycle of WHT provisions under section 195

Ø Scope of WHT

Ø Compliance default

Ø Alternate remedy for payee

Ø Alternate remedy for payer

Ø Quantifying WHT

Ø Character of payment

Ø Trigger point of section 195

Scope of WHT

Operative provision of Section 195 of the Income-tax Act, 1961 (IT Act)

Other sums.

195. [(1) 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 section 194LC)] [or section 194LD] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force...

Other clauses of Section 195



Other provisions applicable for section 195 of IT Act
 195(2) Application by "Payer" to Tax Authorities (AO) to determine appropriate proportion of income chargeable to tax
 195(3) Application by Payeeto AO for NIL WHT certificate
 195(4) Validity of certificate issued by AO
 195(5) Powers of CBDT to issue Notifications
 195(6) Furnishing of information relating to payments
 195(7)* Authority of board to specify class of person or cases to make application under Section 195(2)
 195A Income payable “net of taxGrossing-up

Scope of WHT (2/2)

Responsibility of WHT

Payers covered

Ø Any Person” Covered irrespective of their status - includes person under Section 2(31) responsible for paying (including individuals and HUF)

Ø Payer itself in case of company, and the company includes principal officer

Ø It also includes all non residents having taxable presence in India or not as per Explanation 2 to section 195 and Circular No. 726 dated 18 October 1995 or extra territorial jurisprudence

Payees covered

Ø Nonresident agent/ POA holder of a nonresident in India?

Ø Resident but not ordinary resident RNOR?

Ø Payment made to a foreign branch of an Indian company?

Ø Foreign companies constituting. PoEM in India?

Trigger point for section 195 (1/3)

Applicability of section 195

 Sum chargeable to tax Timing of WHT

All payments covered (exclusion specified), no threshold limit prescribed

"Any other sum chargeable". Composition provision:

Extends to whole of India & definition

Previous year and charge of Income-Tax

scope of Total Income :

    Received or deemed to be received in India 

    Accrue or arises or deemed to accrue or arise in India

Residence in India 

Amount paid that bears character of income on gross basis that may or may not represent income or profits, CBDT circular no. 152 of 1974.

Tax to be withheld at the time of payment / credit whichever is earlier

Tax to be withheld even where no remittance is made, adjustment of dues

WHT in cases where RBI approval is required

If no income accrues to nonresident irrespective of accounting system incorporating liability, no WHT. However, on cash basis

Payee must be identifiable / ascertainable

Time of deduction, from payers point of view and sum chargeable to tax in India from payee point of view

Trigger point for section 195 (2/3)

sum chargeable to tax brief insight

Where, payment made by resident to non-resident, was an amount not chargeable to tax in India, no tax is deductible at source as per CBDT instruction no. 2/2014

Assessee liable to deduct ids under section 195 on payment made to non-resident even though payment is not made in cash but made in kind

Payer obligated to WHT, even if the receipt is not taxable in the hands of the payee in the country of residence

Sums not liable to tax in India on satisfaction of conditions, the principles are enunciated under circular 23/1969 and 786/2000 (now withdrawn) like (p to p, nonresident operates outside India, contract signed outside India, title of goods passed outside India, payment is directly remitted abroad, etc.). Payments to:

Agency commission payable to foreign agents;

Offshore supply of goods and equipments;

Consideration paid for outright purchase of designs and drawings is not royalty;

applicability of withholding tax to shipping company taxed under section 172; and

Does amount paid as penalty to the regulators chargeable to tax under section 195?

Any significant impact on withdrawal of the circulars?

Trigger point for section 195 (3/3)

Specific exclusion for WHT under 195




Tax on distributed profits of domestic companies


Income from salaries


Income by way of interest from infrastructure debt fund


Income from units of a business trust


Income from units of investment funds


Income of investment in securitization trust


Income by way of interest from Indian company


Income by way of interest on certain bonds and government securities

Other specific sections


Income from units


Income from FCCBS or GDRS of Indian companies


Income from FIIS now FPI except capital gains

Character of payment

Nature of Income

Basis of tax

Income chargeable under

(payee perspective)

IT Act

Tax Treaty

Business / Profession income

Taxable if Business Connection in India or Property or asset or source of income in India or transfer of a capital asset is situated in India

Section 9(1 )(i)

Article 5, 7 and 14

Capital Gain

Taxable if situs of shares/ property is in India

Section 9(1 )(i)

Article 6 and 13


Taxable if paid by an Indian company

Section 9(1)(iv)

Article 10

(subject to DDT)


Taxable if sourced in India with certain


Section 9(1 )(v)

Article 11


Section 9(1)(vi)

Fees for Technical

Services (FTS)

Section 9(1)(vii)

Article 12


Taxable if services are rendered in India

Section 9(1)(ii)

Article 15

Determining the nature of payment

The OECD BEPS Action Plan initiative

Action Plan 1 - Digital Economy

Introduction of equalization levy on online advertisements

Action Plan 2 - Hybrid Mismatch & Arrangements

Part of Mil arrangement however, India has not included in its Mil commitment

Action Plan 3 - CFC Rules

Introduction of 'Place of Effective Management' Rules for tax residency

Action Plan 4 - Interest Deduction

Thin capitalization regulations introduced under Transfer Pricing Regulations

Action Plan 5 - Harmful Tax Practices

India not on the OECD harmful tax practices progress report list as update in May 2018

Action Plan 6 - Prevent Tax Treaty Abuse

Included in the MLI arrangement. India has accepted the simplified LOB and PPT rules under the MLI document

Action Plan 7 - Avoiding Artificial PE status

Forming part of its provisional MLI commitment

Action Plan 8-10 - Transfer Pricing Recommendation

Revised OECD commentary incorporates the recommendations in the Action Plans for intangibles, Risk and Capital, etc.

Action Plan 11 - Measuring & Monitoring BEPS

No action taken yet

Action Plan 12 - Disclosure Rules

India yet to notify regulations for disclosure of aggressive tax positions

Action Plan 13 - Country-By-Country Reporting

Introduction of CbC reporting as per OECD norms

Action Plan 14 - Dispute Resolution

Forming part of its provisional MLI commitment

Action Plan 15 - Multilateral Instrument (MLI)

India adopted & notified all its 93 DTAAs to be covered under of MLIs with express reservations

Snapshot of India’s major trading & investment partner countries
                                Applicable MLI with India

85 countries signed MLI (as on 21 Dec 2018) with India adopting Art.7 PPT + S-LOB; Art.12 DAPE; Art.13 Option A + anti-fragmentation

Key India tax treaty partners not signed MLI yet- existing treaties remain unaffected

India tax treaty partners signed MLI - existing treaties modified based on matching of MLI position of both countries

Treaty partners signed MLI but not included India in their provisional lists - existing treaties remain unaffected

USA, Brazil, Thailand

Australia, Canada, Cyprus, France, japan, Netherlands, UK, Luxembourg, Ireland, Italy, Prussia, south Africa, Singapore, Malaysia

Mauritius, china, Germany

Implementation of MLI


Proposed to be ratified

17 countries over all till 21 December 2018

Australia, Austria, France


Notable list of countries making effective are:

Lom, Israel, Japan, Newzealand, Sweden, UK



Quantifying WHT

Rates in force

Rates in force as defined under section 2(37a) of the it act

Rates of income-tax specified in it act/tax treaty under section 2(37a)(iii), beneficial rates to apply

CBDT circular no. 728 dated 30 October 1995 or740 dated 17/04/1996

The exchange rate is applicable as per rule 26 - SBITT buying rate, what about rate fluctuations?

Rates prescribed under the tax treaty are inclusive of surcharge and education cess?

Tax to be house withheld under Section 195 :

Is on gross basis; and

Withholding tax rate under section 195 is final

Interplay between proposed equalization levy under Finance Act,2016 and Income-tax Act,1961

Significance to obtain PAN while making the remittance to nonresident

Section 206AA, is non- obstante provision that override the IT Act effective 1-4-2010


Quantifying WHT

Section 195a- income payable net of tax(grossing-up)

In the event of tax chargeable on any income is borne by the payer

For the purposes of WHT Under Section 195, income should be increased to such amount as would, after WHT theron at the rates in force, be equal to the net amount payable to the payee

Section 195A does not apply on notional income Under Section 44BB

Tax credit claimed by the payee to be restricted commercially - Compliance Under Section 203?

Can refund be claimed if taxes are withheld erroneously under Section 195?

Illustration of Section 195A:


Amount in INR

Amount payable to nonresident


Add: WHT (assumed to be 10% as per the tax treaty) grossed-up (10*100/90)


Total income


    Less: WHT applicable at 10%


Net amount payable to the nonresident (Recipient)


Friction between section 206AA and 195A-is section 206AA applicable for grossing Purposes and its legitimacy?

Alternate remedy for the payer

Application by payer to the AO under section 195(2) and (4)

Application By Whom?

The application to be made by the payer before the jurisdiction tax authority

When to apply?

When the payer is in doubt and believes that the whole of sum payable is net chargeable to tax in India


Payer to approach tax authority to determine portion of income chargeable to tax

Online system validate certificate prescribed


AO may issue a certificate, determining the portion of income chargeable to tax

The permission is valid for the period specified

No specified time limit available to pass the order Under Section 195(2)

Order under section 195(2) is:

Appealable after payment of tax

Amenable to revision under section 263

Decision under section 195(2) is inconclusive in determination of income in case of foreign entity

Provisions for CA certificate

Circular 10/2002 authorizes remittance of money through a CA certificate

CA certificate required also for trade payments- RBI circular no. 32 dated 19 July 2007 

Provision under section 195(6) introduced by the finance act, 2008 for CA certificate

Rule 37BB introduced by CBDT vide notification 30/2009 dated 25/03/2009 :

Forms 15CA and 15CB to remit payments to nonresidents and intimate the manner of disclosure :

Form 15CA, prescribed information to be furnished online by the payer; and

Form 15CB, prescribes format of CA certificate to be obtained

Taxpayer not absolved from penalty / prosecution if found that WHT was lower than required

CA certificate merely acts as a guidance and is not a substitute to adjudication by the AO

Procedure for remittance was amended from 01st October 2013, with significant change in the procedure, being more technological robust and detailed

Specified list of 28 payments like outbound investments, gifts, etc. Exempt from the procedures

Notification issued on 16 December 2015 to amend rule 37BB for new forms and compliances

Remittance certificate issued by CA subject to penal provisions prescribed per default


Practice and Operational Rules

Rule 37BB amended effective 1 April 2016 with an aim to strike balance between burden of compliance and collection of information

Individuals exempt to comply with form is CA and 15CB procedures if :

Payment or aggregate of such payment does not exceed INR 5 Lacs or specified list; and

Remittance does not require RBI approval under LRS and current account transactions specified list of remittances expanded to 33 for non applicability of rule and additions include:

Specific list of remittance expanded to 33 for non applicability of Rule & additions include :

1. Advance payment against imports

2. Payment towards Imports-settlement of invoice

3. Imports by Diplomatic missions

4. Intermediary Trade

5. Imports below INR 5 Lacs (for use by ECD offices)

Enhanced compliance of 15CA and 15CB information to be shared with principal director of income-tax (systems) including filing of quarterly information on remittance by the AD in form 15CC

revised form nos. 15CA and 15CB divided in 4 parts:

Part A

    Remittance does not exceed INR 5     lacs and amounts chargeable to         tax     





    Mirror image of CA Certificate             Perm 15CB where payments                 exceed INR 5 lacs

Part C

Part B

    Subset of Part A and lower                 WHT certificate obtained under             Section 195(2)/195(3)/197

    Sum not chargeable to tax under         the provisions of the Act

Part D


Practice and operational rules

Amended procedures for CA certificate

Sample declaration from the payee

Amended procedures for CA certificate

only taxable remittances to be reported in form 15CA select form is CA in parts:

Part A: Applicable to remittances chargeable to tax for small payments that does not exceed INR 5 lacs or aggregate of such payments during the financial

Part B:  for any other payments chargeable to tax and lower / nil WHT certificate is obtained

Part C: Form 15CA after obtaining CA certificate in form 15CB for sums chargeable to tax

Part D: Information of any sum not chargeable to tax form 15CA to be electronically uploaded on income-tax website. Amended process through generation of digital signatures for every payment

form 15CA to be electronically uploaded on income-tax website. Amended process through generation of digital signatures for every payment

Specific declaration / indemnity to be obtained by the payer for taxes and interest if payment is liable for WHT

Undertaking to be obtained from the payee

<< On the letterhead of Payee>>

Date : _________


We, the Payee, hereby confirms as follows :

1.We are a Limited Company incorporated and registered in______ with Unique Entity Number______ .

2.We are a tax resident of ______as per Article 4 of the tax treaty and the place of world assessment of our income is in______

3.We do not have any Permanent Establishment/Fixed place in India as defined under Article 5 of the Treaty. Also we will not have a Permanent Establishment/Fixed place in India within the meaning of the Treaty for the financial year.

4.The amount payable and its nature under the tax treaty

5.The amount is to be remitted to payee are the beneficiaries hereof.

6.In the event there is any income-tax demand (include interest etc) raised in India in respect of this remittance we undertake to pay the demand forthwith and provide______ with all information/documents that may be necessary for any proceedings before income tax/appellate authority in India.

7.Indemnity to protect from General Anti-Avoidance Rules  For Payee

Practice and operational rules

Suggested method for CA Certificate

Tax Residency Certificate (TRC)


Action plan and approach

  • TRC requirement for nonresidents to claim tax treaty benefits

  • Also confirmed by Circular on Section 206AA Furnishing of

  • Furnishing of TRC mandatory to avail tax treaty benefits:

  • SC in the case of UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC)

  • Circular 789 dated 13 April 2000

  • Shome Committee report on GAAR recommends that Circular 789 of 2000 should be retained

  • Prescribed additional information to be furnished along with TRC

  • CBDT clarified that the additional information prescribed may not be required if it already forms part of the TRC

Notification No. 57/2613 dated 1/08/2013[F.No. 142/16/2013- TPL] revised the Rule 21AB

Payment covered under Section 195

Payment from resident or from non resident to nonresident

Verify factual documents

Invoice, Contracts, Legal Status, obtain declaration, PAN, etc.

Determine character

Classification of payment, Business profits, Royalty, FTS, etc.

Evaluate taxability under the

IT Act

Income-tax rates, Grossing-up, Section 206AA, Case law update

Tax treaty

No PE, TP analysis, beneficial owner, entity characterization, Article. LOB clause Obtain TRC. MFN, Protocol to the DTAA, MLI, OECD BEPS Technical explanation to the DTAA, Model commentaries

Specific orders

Verify specific orders received from tax authorities, 195(2), 195(3), etc.

Follow compliance

Complete the Form to comply with WHT deadlines for deposit

Credit for Above article goes out to 'Shailendra Sharma'