Published 9 May 2026
Section 195 of the Income-tax Act, 1961 read with the First Schedule and the relevant Double Taxation Avoidance Agreement -- the income-type-by-income-type table of withholding rates on interest, dividend, royalty, fees for technical services, capital gain, rent, and the Tax Residency Certificate plus Form 10F process to claim the lower treaty rate
Taxpayer Brief
Section 195 of the Income-tax Act, 1961 imposes a withholding obligation on every Indian-source payment to a Non-Resident -- without exception. The default rates in the First Schedule to the Finance Act are typically high; the Double Taxation Avoidance Agreement that India has with each major country reduces these to single-digit or low-double-digit percentages, but only if the Non-Resident Indian has produced (i) a Tax Residency Certificate from the foreign country and (ii) a Form 10F self-declaration. This article is the master chart -- one row per income type, three columns showing the Indian default rate, the typical Double Taxation Avoidance Agreement rate, and the practitioner notes.
1. The Section 195 Architecture
Sub-section (1) of section 195 reads -- any person responsible for paying to a Non-Resident any sum chargeable under the Income-tax Act, 1961 shall, at the time of credit or payment, deduct income-tax thereon at the rates in force. The 'rates in force' are prescribed in Part II of the First Schedule to the Finance Act for the relevant year. Where the Non-Resident is eligible for a lower rate under a Double Taxation Avoidance Agreement, sub-section (2) of section 90 read with the relevant treaty operates, and the deductor applies the lower of the two rates.
2. The Master Chart -- Indian Default Rates
Income Type | Indian Default Rate (with 4% Cess; surcharge varies) | Statutory Source |
|---|---|---|
Interest on Non-Resident Ordinary deposit / Indian bonds | 31.2% to 35.88% | Section 195 read with section 9(1)(v) |
Interest on Non-Resident External / Foreign Currency Non-Resident | Nil -- exempt under section 10(4)(ii) / section 10(15)(iv) | Section 10 |
Interest on Infrastructure Debt Fund -- section 115A(1)(a)(iia) | 5.2% | Section 115A |
Interest on External Commercial Borrowings / Long-Term Bond -- section 115A(1)(a)(iiaa) | 5.2% | Section 115A |
Dividend declared by Indian company -- post Finance Act, 2020 | 20.8% to 23.92% | Section 195 read with section 9(1)(iv) |
Royalty / Fees for Technical Services -- section 115A | 10.4% to 11.96% | Section 115A |
Long-Term Capital Gain on listed equity (over ₹1.25 lakh per year) -- post 23 July 2024 | 13% to 14.95% | Section 112A |
Long-Term Capital Gain on listed equity (over ₹1 lakh per year) -- pre 23 July 2024 | 10.4% to 11.96% | Section 112A pre-amendment |
Short-Term Capital Gain on listed equity (post 23 July 2024) | 20.8% to 23.92% | Section 111A |
Short-Term Capital Gain on listed equity (pre 23 July 2024) | 15.6% to 17.94% | Section 111A pre-amendment |
Long-Term Capital Gain on land / building (post 23 July 2024) | 13% to 14.95% | Sub-section (1A) of section 112 |
Long-Term Capital Gain on land / building (pre 23 July 2024) | 20.8% to 23.92% | Section 112 |
Short-Term Capital Gain on land / building | 31.2% to 35.88% | Section 195 |
Long-Term Capital Gain on debt mutual fund (units bought before 1 April 2023) | 13% to 14.95% (post 23 July 2024) or 20.8% to 23.92% (pre) | Sub-section (1A) of section 112 |
Short-Term Capital Gain on debt mutual fund / Specified Mutual Fund | 31.2% to 35.88% (slab rate) | Section 195 |
Capital Gain on equity-oriented mutual fund -- as per holding period | 12.5% / 20% rates same as listed equity above | Section 112A / 111A |
Rent on immovable property | 31.2% to 35.88% | Section 195 |
Sale consideration on immovable property (Long-Term) | 13% to 14.95% on the gross consideration | Section 195 read with sub-section (1A) of section 112 |
Pension / annuity from Indian employer | Slab rate -- 31.2% effective at maximum | Section 195 |
Salary by Indian employer for work performed in India | As per section 192 -- standard salary deduction | Section 192 |
Income from units -- non-resident -- section 115A(1)(a)(iiab) | 5.2% | Section 115A |
Winnings from lottery, crossword puzzle, online gaming | 31.2% | Section 194B / 194BA |
Income from units of business trust (Real Estate Investment Trust / Infrastructure Investment Trust) | 10.4% interest; rental component slab | Section 194LBA |
Income from Specified Mutual Fund -- non-resident | 20.8% to 23.92% | Section 196A |
Foreign sportsmen / sports association -- section 115BBA | 20.8% to 23.92% | Section 115BBA |
3. The Double Taxation Avoidance Agreement Reduction Matrix
Below are typical Double Taxation Avoidance Agreement rates for the most common Non-Resident Indian residence countries. Each treaty has its own article numbers, conditions, and Most-Favoured-Nation clauses -- consult the actual treaty before relying on the rate.
Country | Interest | Dividend | Royalty / Fees for Technical Services | Capital Gains |
|---|---|---|---|---|
United States | 15% | 25% (15% if 10%+ shareholding) | 15% | Per source country (India taxes Indian property gain) |
United Kingdom | 15% | 15% | 15% | Same |
Canada | 15% | 15% (25% portfolio) | 10-15% | Same |
Australia | 15% | 15% | 10-15% | Same |
Singapore | 10% (banks) / 15% | 10% / 15% | 10% | Same |
United Arab Emirates | 12.5% | 10% | 10% | Same |
Germany | 10% | 10% | 10% | Same |
France | 10% | 10% | 10% | Same |
Japan | 10% | 10% | 10% | Same |
Netherlands | 10% | 5% (corporate) / 10% (individual) | 10% | Same |
Mauritius | 7.5% | 5% / 15% | 10-15% | Per source country (residual capital gain to residence) |
Switzerland | 10% | 10% | 10% | Same |
Most-Favoured-Nation traps Some Double Taxation Avoidance Agreements (notably France, Netherlands, Switzerland) contain a Most-Favoured-Nation clause that auto-imports the lower rate from a third-country treaty. The Supreme Court of India in Nestle SA / Concentrix Services held in 2023 that the Most-Favoured-Nation benefit requires a specific Indian government notification to operate -- without notification, the higher original rate continues. Verify the position before relying on a Most-Favoured-Nation reduction. |
4. The Tax Residency Certificate Plus Form 10F Process
Step | Action | Document |
|---|---|---|
1 | Apply to the foreign tax authority for a Tax Residency Certificate for the relevant Indian financial year | Tax Residency Certificate -- e.g., United States Internal Revenue Service Form 6166; United Kingdom HM Revenue and Customs certificate |
2 | Prepare Form 10F online on the Indian e-filing portal -- self-declaration of Permanent Account Number, country of residence, period of validity | Form 10F -- e-filed; Permanent Account Number mandatory |
3 | Submit Tax Residency Certificate plus Form 10F to the Indian payer (deductor) before the payment | Both |
4 | Deductor applies the lower of the Indian default rate and the Double Taxation Avoidance Agreement rate | Form 16A reflects the applied rate |
5 | If the Form 10F is rejected (e.g., Permanent Account Number-Aadhaar issue), the higher Indian default rate applies; refund route via Income Tax Return | Refund through Income Tax Return-2 |
5. Form 27Q -- The Quarterly Return
The Indian deductor reports every Non-Resident-payee Tax Deducted at Source in Form 27Q quarterly, separately from the Resident-payee Form 26Q. The Non-Resident Indian receives Form 16A (Tax Deducted at Source certificate) within 15 days of the quarter-end Form 27Q filing. The Tax Deducted at Source credit appears in Form 26AS Part B and in Annual Information Statement -- the Non-Resident Indian claims it in Schedule TDS2 of the Income Tax Return-2.
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
6. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: Section 195 architecture and DTAA reduction Section 195 of the Income-tax Act, 1961 mandates Tax Deducted at Source on payments to Non-Residents at the relevant rate prescribed in the Income-tax Rules. The Supreme Court in GE India Technology Centre v. Commissioner of Income-tax (2010) 327 ITR 456 (SC) confirmed the section 195 architecture. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on the DTAA reduction under section 90(2)] confirmed the rule that the lower of domestic-Income-tax-Act rate or treaty rate applies. [VERIFY: cross-check specific Tribunal citations in the BharatTax case-law database.] |
Prospective Interpretation -- The Form 27Q and Form 16A architecture Two unsettled interpretive issues. (i) Treatment of Form 27Q (TDS return for NR payments) and Form 16A (TDS certificate). (ii) Treatment of the section 195(2) certificate route. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the section 195 architecture.] |
7. Key Takeaways
- Section 195 imposes Indian Tax Deducted at Source on every Indian-source payment to a Non-Resident -- default rates in the First Schedule are typically high.
- Tax Residency Certificate from the foreign country plus Form 10F filed in India is the gateway to the lower Double Taxation Avoidance Agreement rate.
- Country-wise Double Taxation Avoidance Agreement rates -- 10% to 15% for interest, dividend, royalty in most major treaties; capital gain mostly source-state.
- Surcharge on Non-Resident-payee Tax Deducted at Source capped at 15% post Finance Act, 2023 (was 37% earlier).
- Equity-oriented mutual fund / listed-equity capital gain rates -- 12.5% / 20% post 23 July 2024.
- Form 27Q quarterly return by deductor; Form 16A within 15 days; credit in Form 26AS Part B; Income Tax Return-2 Schedule TDS2 claim.
- Most-Favoured-Nation reductions in Indian Double Taxation Avoidance Agreements require government notification (Supreme Court 2023) -- do not assume auto-application.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.