Section 195 of the Income Tax Act, 1961, deals with the deduction of Tax Deducted at Source (TDS) on payments made to non-resident individuals or foreign companies. Under this section, when certain specified payments are made to non-residents, the payer is required to deduct TDS at the applicable rates before making the payment. The purpose of this provision is to ensure that taxes are withheld at the source, especially for income earned by non-residents in India, and to avoid tax evasion.
Payments that are subject to TDS under Section 195 typically include:
- Interest: Any interest payment made to a non-resident, including interest on loans or deposits.
- Royalty: Payments for the use of copyrights, patents, trademarks, or similar intellectual property.
- Technical Fees: Payments for technical services provided by a non-resident, such as consulting or technical support.
- Any Other Sum Chargeable under the Income Tax Act: Any other payment made to a non-resident that is chargeable to tax in India.