CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 195 — Other Sums (Payments to Non-Residents) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The principal cross-border withholding provision; heavily litigated.
Finance Act, 2026: No amendment.
Mechanism: Any person paying a non-resident interest or any other sum chargeable to tax in India (not salary) deducts tax at the rates in force, read with the DTAA, at the earlier of credit or payment; no threshold; determination machinery in sub-sections (2)/(3)/(7) and reporting under sub-section (6).
Litigation profile: Treatise-grade. The decisive ideas are deduction only on a chargeable sum (GE India Technology) and the characterisation of cross-border payments (Engineering Analysis on software).
A. SECTION COMMENTARY
Section 195 is the principal cross-border withholding provision. It requires any person responsible for paying to a non-resident (or to a foreign company) any interest or any other sum chargeable under the provisions of the Act (not being salary) to deduct income-tax at the rates in force at the time of credit or payment, whichever is earlier. Unlike the resident-facing sections, it has no monetary threshold and no fixed rate of its own — the rate is the 'rate in force' for the particular income, read with the relevant Double Taxation Avoidance Agreement. It is supported by a determination machinery (sub-sections (2), (3) and (7)) and by the reporting regime in section 195(6) (Forms 15CA/15CB).
The governing words: 'sum chargeable under the provisions of this Act'
The single most important phrase is 'chargeable under the provisions of this Act'. The obligation to deduct arises only if, and to the extent that, the sum paid to the non-resident bears income chargeable to tax in India (under sections 4, 5 and 9, read with the treaty). A remittance to a non-resident that carries no India-chargeable income attracts no deduction at all. The payer who is in doubt is not obliged to deduct on the gross sum; he may either form a bona fide view of the chargeable portion or approach the Assessing Officer under section 195(2) for a determination.
The 'appropriate proportion' and the determination machinery
Where only a part of the sum is chargeable, deduction is on that appropriate proportion. The earlier view that any payment with a taxable element required deduction on the whole unless the Assessing Officer determined otherwise has been authoritatively confined: the deduction is keyed to chargeability, and the section 195(2) route is a facility, not a precondition. The treaty is to be given effect at the deduction stage (the payer may apply the more beneficial treaty rate), subject to the documentation and the anti-abuse safeguards.
Consequences and the software/royalty learning
Failure to deduct exposes the payer to sections 201(1)/(1A), penalty under section 271C and, importantly, disallowance under section 40(a)(i). A vast jurisprudence has grown around the characterisation of cross-border payments — most prominently the holding that payments for shrink-wrapped/licensed computer software are not 'royalty' under the DTAAs and hence carry no section 195 obligation. The recurring questions are therefore characterisation (royalty, fees for technical services, business profits) and the existence of a chargeable sum, each decided on the interaction of the Act and the treaty.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
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 :
Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.
Explanation 1.—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
(6) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.
(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.
C. AUTHORITIES
The authorities are arranged around the controlling idea — deduction only on a sum chargeable to tax in India — and the characterisation disputes (software/royalty, fees for technical services, capital gains). All citations are web-verified.
Cluster 1 — Deduction only on a 'sum chargeable to tax'
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC)
Issue: Whether a payer must deduct under section 195 on the whole sum remitted to a non-resident, or only where the sum is chargeable to tax in India.
Held: The obligation to deduct arises only when the sum paid is chargeable to tax under the Act. The words 'chargeable under the provisions of the Act' in section 195(1) are central; a payer is not bound to deduct if the sum is not chargeable, and need not invoke section 195(2) in every case.
Significance: The foundational modern statement — TDS under section 195 is keyed to chargeability, not to the mere fact of remittance.
Transmission Corporation of A.P. Ltd. v. CIT (1999) 239 ITR 587 (SC)
Issue: Whether section 195 applies where the sum payable to a non-resident is a trading receipt only part of which is chargeable.
Held: Section 195 applies to any sum chargeable, including a trading receipt the whole or part of which is chargeable; deduction is on the appropriate proportion that is chargeable, and the payer may seek the Assessing Officer's determination.
Significance: The earlier leading case; its 'appropriate proportion' principle was harmonised, and any wider reading corrected, by GE India Technology.
Cluster 2 — Characterisation: software, royalty and technical fees
Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (2021) 432 ITR 471 (SC)
Issue: Whether payments by Indian end-users/distributors to non-resident software suppliers for resale/use of computer software are 'royalty', obliging deduction under section 195.
Held: No. Such payments are for the sale/use of a copyrighted article, not for the use of the copyright itself, and are not 'royalty' under the relevant DTAAs; no income chargeable in India arises, so there was no obligation to deduct under section 195.
Significance: The landmark on software payments — and a powerful illustration that, absent a chargeable sum under the treaty, section 195 does not bite.
GVK Industries Ltd. v. ITO (2015) 371 ITR 453 (SC)
Issue: Whether a success fee paid to a non-resident for arranging finance/advisory services was 'fees for technical services' chargeable in India, attracting section 195.
Held: On the facts the fee was chargeable as fees for technical services with a source in India; section 195 applied. The Court analysed the source rule and the scope of fees for technical services for non-residents.
Significance: A leading authority on the source taxation of technical/advisory fees that fixes the section 195 obligation.
Cluster 3 — No charge, no obligation; and consequences
Vodafone International Holdings B.V. v. Union of India (2012) 341 ITR 1 (SC)
Principle: Where the transaction (an offshore transfer of shares) did not give rise to income chargeable to tax in India under the law as it then stood, there was no obligation to deduct under section 195; the deduction obligation cannot exceed the underlying charge.
Use: The clearest statement that section 195 follows the charge — no India-chargeable income, no deduction.
CIT v. Eli Lilly & Co. (India) (P) Ltd. (2009) 312 ITR 225 (SC) — cognate on consequences
Principle: Default consequences (section 201/271C) turn on bona fides and reasonable cause; interest under section 201(1A) is compensatory.
Use: Governs the exposure for a failure to deduct under section 195, alongside disallowance under section 40(a)(i).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 195 — Other Sums (Payments to Non-Residents) (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The principal cross-border withholding provision; heavily litigated.
Finance Act, 2026: No amendment.
Mechanism: Any person paying a non-resident interest or any other sum chargeable to tax in India (not salary) deducts tax at the rates in force, read with the DTAA, at the earlier of credit or payment; no threshold; determination machinery in sub-sections (2)/(3)/(7) and reporting under sub-section (6).
Litigation profile: Treatise-grade. The decisive ideas are deduction only on a chargeable sum (GE India Technology) and the characterisation of cross-border payments (Engineering Analysis on software).
A. SECTION COMMENTARY
Section 195 is the principal cross-border withholding provision. It requires any person responsible for paying to a non-resident (or to a foreign company) any interest or any other sum chargeable under the provisions of the Act (not being salary) to deduct income-tax at the rates in force at the time of credit or payment, whichever is earlier. Unlike the resident-facing sections, it has no monetary threshold and no fixed rate of its own — the rate is the 'rate in force' for the particular income, read with the relevant Double Taxation Avoidance Agreement. It is supported by a determination machinery (sub-sections (2), (3) and (7)) and by the reporting regime in section 195(6) (Forms 15CA/15CB).
The governing words: 'sum chargeable under the provisions of this Act'
The single most important phrase is 'chargeable under the provisions of this Act'. The obligation to deduct arises only if, and to the extent that, the sum paid to the non-resident bears income chargeable to tax in India (under sections 4, 5 and 9, read with the treaty). A remittance to a non-resident that carries no India-chargeable income attracts no deduction at all. The payer who is in doubt is not obliged to deduct on the gross sum; he may either form a bona fide view of the chargeable portion or approach the Assessing Officer under section 195(2) for a determination.
The 'appropriate proportion' and the determination machinery
Where only a part of the sum is chargeable, deduction is on that appropriate proportion. The earlier view that any payment with a taxable element required deduction on the whole unless the Assessing Officer determined otherwise has been authoritatively confined: the deduction is keyed to chargeability, and the section 195(2) route is a facility, not a precondition. The treaty is to be given effect at the deduction stage (the payer may apply the more beneficial treaty rate), subject to the documentation and the anti-abuse safeguards.
Consequences and the software/royalty learning
Failure to deduct exposes the payer to sections 201(1)/(1A), penalty under section 271C and, importantly, disallowance under section 40(a)(i). A vast jurisprudence has grown around the characterisation of cross-border payments — most prominently the holding that payments for shrink-wrapped/licensed computer software are not 'royalty' under the DTAAs and hence carry no section 195 obligation. The recurring questions are therefore characterisation (royalty, fees for technical services, business profits) and the existence of a chargeable sum, each decided on the interaction of the Act and the treaty.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
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 :
Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.
Explanation 1.—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
(6) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.
(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.
C. AUTHORITIES
The authorities are arranged around the controlling idea — deduction only on a sum chargeable to tax in India — and the characterisation disputes (software/royalty, fees for technical services, capital gains). All citations are web-verified.
Cluster 1 — Deduction only on a 'sum chargeable to tax'
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC)
Issue: Whether a payer must deduct under section 195 on the whole sum remitted to a non-resident, or only where the sum is chargeable to tax in India.
Held: The obligation to deduct arises only when the sum paid is chargeable to tax under the Act. The words 'chargeable under the provisions of the Act' in section 195(1) are central; a payer is not bound to deduct if the sum is not chargeable, and need not invoke section 195(2) in every case.
Significance: The foundational modern statement — TDS under section 195 is keyed to chargeability, not to the mere fact of remittance.
Transmission Corporation of A.P. Ltd. v. CIT (1999) 239 ITR 587 (SC)
Issue: Whether section 195 applies where the sum payable to a non-resident is a trading receipt only part of which is chargeable.
Held: Section 195 applies to any sum chargeable, including a trading receipt the whole or part of which is chargeable; deduction is on the appropriate proportion that is chargeable, and the payer may seek the Assessing Officer's determination.
Significance: The earlier leading case; its 'appropriate proportion' principle was harmonised, and any wider reading corrected, by GE India Technology.
Cluster 2 — Characterisation: software, royalty and technical fees
Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (2021) 432 ITR 471 (SC)
Issue: Whether payments by Indian end-users/distributors to non-resident software suppliers for resale/use of computer software are 'royalty', obliging deduction under section 195.
Held: No. Such payments are for the sale/use of a copyrighted article, not for the use of the copyright itself, and are not 'royalty' under the relevant DTAAs; no income chargeable in India arises, so there was no obligation to deduct under section 195.
Significance: The landmark on software payments — and a powerful illustration that, absent a chargeable sum under the treaty, section 195 does not bite.
GVK Industries Ltd. v. ITO (2015) 371 ITR 453 (SC)
Issue: Whether a success fee paid to a non-resident for arranging finance/advisory services was 'fees for technical services' chargeable in India, attracting section 195.
Held: On the facts the fee was chargeable as fees for technical services with a source in India; section 195 applied. The Court analysed the source rule and the scope of fees for technical services for non-residents.
Significance: A leading authority on the source taxation of technical/advisory fees that fixes the section 195 obligation.
Cluster 3 — No charge, no obligation; and consequences
Vodafone International Holdings B.V. v. Union of India (2012) 341 ITR 1 (SC)
Principle: Where the transaction (an offshore transfer of shares) did not give rise to income chargeable to tax in India under the law as it then stood, there was no obligation to deduct under section 195; the deduction obligation cannot exceed the underlying charge.
Use: The clearest statement that section 195 follows the charge — no India-chargeable income, no deduction.
CIT v. Eli Lilly & Co. (India) (P) Ltd. (2009) 312 ITR 225 (SC) — cognate on consequences
Principle: Default consequences (section 201/271C) turn on bona fides and reasonable cause; interest under section 201(1A) is compensatory.
Use: Governs the exposure for a failure to deduct under section 195, alongside disallowance under section 40(a)(i).
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.