What is Section 195 and 194?
Asked by: Ora Macejkovic | Last update: February 9, 2026Score: 4.6/5 (24 votes)
Sections 194 and 195 of India's Income Tax Act deal with Tax Deducted at Source (TDS), with Section 194 primarily covering TDS on dividends paid to residents, while Section 195 is crucial for TDS on payments made to Non-Resident Indians (NRIs) and foreign companies, covering interest, royalties, technical fees, and other taxable income. Both mandate the payer to deduct tax before making the payment, ensuring tax collection at the source.
What is the meaning of Section 195?
Under Section 195 of the Income Tax Act, any person making a payment to non-residents (excluding companies) or to a foreign company must deduct TDS (Tax Deducted at Source) if the payment is subject to income tax.
Who is responsible for deducting tax under section 195?
Under Section 195, any person making a payment to a non-resident is required to deduct TDS if the income is chargeable to tax in India. This includes individuals, firms, companies, or even non-residents making payments to other non-residents.
What is a Section 195 expense?
Section 195(b) provides that start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses that are allowed as a deduction prorated equally over a period of not less than 60 months (beginning with the month in which the active trade or business begins).
What is the meaning of section 194?
What is Section 194? As per section 194 of the Income Tax Act the principal officer of an Indian company declaring and paying dividend to deduct tax at source from the amount of dividend before paying it to any resident.
What Is New TDS Rate On Property Sell For NRIS In Budget 2025
How much cash can be withdrawn from a bank?
Most banks usually set a cash limit of Rs 1-2 lakhs by cheque per day. This limit applies generally for the self-use of cheques. Usually, you tend to receive all withdrawal limit conditions and fees and charges while you hit on the offline or online saving account opening option.
What are common causes of high TDS?
Chemicals used in mining, construction disturbing minerals in the soil, petroleum-based chemicals from urban runoff, and pesticides from agricultural runoff can all add more TDS to water. Even water treatment facilities often add more with the introduction of chlorine and fluoride.
Is income under section 195 taxable?
Section 195 of Income Tax Act, 1961 deals with Tax Deducted at Source (TDS) on payments made to Non-Resident Indians (NRIs) or foreign companies. Whenever an Indian resident makes a payment (other than salary) to an NRI that is taxable in India, TDS under Section 195 must be deducted.
What are the biggest tax mistakes people make?
The biggest tax mistakes people make include simple errors like wrong Social Security numbers, names, or math; failing to file on time or at all; missing out on eligible deductions and credits (like education or retirement); not keeping good records (W-2s, receipts); incorrect filing status; and poor record-keeping for business expenses, leading to potential audits or processing delays. Using IRS.gov resources and tax software helps avoid these common pitfalls.
What forms are required for section 195 compliance?
Compliance and Reporting Under Section 195
Filing Form 15CA is mandatory for payments, and in certain cases, Form 15CB must also be filed.
How to avoid TDS for NRI?
To avoid excessive TDS, meaning Tax Deducted At Source, NRIs can use tax-efficient strategies:
- Open NRE/FCNR accounts. ...
- Invest In Mutual Funds and NRI Plans. ...
- Invest In Indian Equities (PIS) ...
- Buy NRI Life Insurance (ULIPs) ...
- Apply For A PAN. ...
- Plan And File Taxes. ...
- Additional Tips.
How do I avoid 20% tcs on foreign remittance?
To avoid the 20% TCS (Tax Collected at Source) on foreign remittances, keep total transfers under the ₹7-10 lakh annual threshold (depending on purpose), use education loans for studies to get 0% TCS, remit for medical treatment (lower rates apply), split expenses across family members or financial years, use NRI accounts if applicable, or use foreign bank accounts/cards, but remember you can claim deducted TCS as a credit when filing your Income Tax Return (ITR).
How to file TDS return for section 195?
After the process of TDS deposition as per Section 195, the buyer has to file the TDS return through the computerised medium by submitting the Form 27Q. Upon filing the TDS returns under Section 195, the buyer can issue a TDS certificate, referred to as the Certificate of Tax Deduction or Form 16A, to the NRI seller.
What is the new rule for NRI in India?
New rules for NRIs in India focus on stricter tax residency criteria from April 2026, increasing the stay threshold to 120 days for high-income NRIs (over ₹15 lakh Indian income) to become Resident but Not Ordinarily Resident (RNOR) and introducing "deemed residency" for high-income Indians in tax havens; also, higher TCS thresholds for LRS remittances (to ₹10L) and removal of TCS for education loans are recent changes from Budget 2025-26, alongside increased reporting of foreign assets.
Is inr ₹7 lacs income tax free in India?
With the recent changes in the Indian Income Tax Act, it's now possible to pay zero tax on a salary of up to Rs. 7 lakhs. To pay zero tax on a 7 lakh salary using the old tax regime, maximize deductions: Claim Tax Rebate under Section 87A.
Can NRI claim TDS refund?
Other Relevant Points regarding TDS Refund for NRI's
It normally takes 6 months time for the refund to be issued to NRI's. In some cases, it may take longer as well but the normal time is 6 months. The Refund is issued with interest of 6% p.a. applicable from the end of the financial year.
What raises red flags with the IRS?
IRS red flags that trigger audits primarily involve mismatched income/deductions, large or unusual claims, and inconsistent reporting, like failing to report all income from W-2s/1099s, claiming disproportionately high business/charitable deductions, or making errors with home office/rental deductions, especially when compared to income levels or industry averages. High income levels (>$200k) and activities like cryptocurrency or foreign accounts also increase scrutiny.
How do people get $10,000 tax refunds?
A $10,000 tax refund usually comes from significant overpayment during the year or qualifying for large refundable tax credits, like education credits (American Opportunity Credit) or potentially the Child Tax Credit, plus itemized deductions (like the capped State & Local Tax (SALT) deduction) or energy credits, especially when combined with lower income or specific filing statuses (Head of Household, Married Filing Jointly). It's not guaranteed but achieved by maximizing eligible credits and deductions, not by "getting" extra money from the IRS.
What is the most frequently overlooked tax deduction?
The most overlooked tax breaks often include the Saver's Credit (Retirement Savings Contributions Credit) for low-to-moderate income individuals, out-of-pocket charitable expenses, student loan interest deduction, and state and local taxes (SALT), especially if you itemize. Other common ones are deductions for unreimbursed medical costs (over AGI threshold), jury duty pay remitted to an employer, and even reinvested dividends in taxable accounts.
What kind of income is non-taxable?
Inheritances, gifts, cash rebates, alimony payments (for divorce decrees finalized after 2018), child support payments, most healthcare benefits, welfare payments, and money that is reimbursed from qualifying adoptions are deemed nontaxable by the IRS.
What if the dividend is more than 5000?
TDS on dividends is applicable when total dividend income during the financial year exceeds ₹5,000. TDS is deducted on dividend income at 10%, but if PAN is not provided to the paying institution, the TDS rate goes up to 20%. As we know, the tax exemption limit under the Income Tax Act begins from Rs 2.5 lakhs.
What TDS level is considered unsafe?
A TDS level above 500 ppm (parts per million) is considered too high for drinking water by the EPA's aesthetic guidelines, and levels over 1000 ppm are generally deemed unsafe and unfit for human consumption, though the specific type of solids matters more than the amount for health, with levels over 500 ppm warranting further testing for contaminants like lead or nitrates.
How to fix high TDS?
Methods of Reducing TDS in Water
- Reverse Osmosis. Reverse osmosis is a common method for reducing the presence of TDS. This process involves removing contaminants and chemicals in wastewater by utilizing several filtration stages. ...
- Deionization. Deionizing is another successful method for reducing TDS. ...
- Distillation.