s.195 — Tax deducted on other sums paid to non-residents
Anyone paying a non-resident interest or any other sum chargeable to tax, other than salary, must deduct tax at the rates in force on credit or payment, whichever is earlier, with no threshold.
The counterpart in the Income-tax Act, 2025 is serial 17 of the Table in section 393(2); the payer's application to determine the chargeable proportion is in section 395(2), and the payee's certificate for a lower or nil deduction in section 395(1). Section 195 of the 2025 Act is a different provision, the counterpart of section 115BBE.
Income-tax Act, 1961
s.195
Income-tax Act, 2025
s.393(2) Table serial 17; s.395(1) and (2)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 195(1) of the Income-tax Act, 1961 requires any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest, other than interest within sections 194LB, 194LC and 194LD, or any other sum chargeable under the provisions of the Act, not being income chargeable under the head "Salaries", to deduct income-tax at the rates in force at the time of credit of the income to the payee's account or of payment in cash, by cheque or draft or by any other mode, whichever is earlier. For interest payable by the Government, a public sector bank or a public financial institution, deduction is made only at the time of payment. Explanation 1 treats a credit to an interest payable account, a suspense account or an account by any other name as a credit to the payee. Explanation 2, declaratory and retrospective in form, extends the obligation to all persons, resident or non-resident, whether or not the non-resident payer has a residence, place of business, business connection or any other presence in India. Sub-section (2) deals with a payer who considers that the whole of the sum would not be income of the non-resident, and sub-section (3), subject to rules, with the payee's side of the same question. There is no monetary threshold, but the Supreme Court held in GE India Technology Centre (September 2010) that the obligation arises only when there is a sum chargeable under the Act. Because section 194-IA is confined to a resident transferor, a purchaser of immovable property from a non-resident, including a non-resident member who sells the new flat or exits a redevelopment for cash, deducts under this section. The counterpart in the Income-tax Act, 2025 is serial 17 of the Table in section 393(2), covering interest and any other sum chargeable, not being income under the head "Salaries", paid by any person to a non-resident not being a company or to a foreign company, at the rates in force, with notes carrying the payment-only rule for the Government and public sector banks and the rule that the payer's presence in India is irrelevant. The payer's application under section 195(2) is now section 395(2), and the payee's certificate for a lower or nil deduction is section 395(1).
What the provision does
Obliges the payer, resident or not, to withhold at the rates in force from the first rupee of any sum paid to a non-resident that is chargeable to tax in India. It does not apply to a sum that is not chargeable, it does not cover salary, and it does not depend on the payer's presence in India; whether a particular payment, such as hardship compensation or a flat given in kind, is a sum chargeable is a judgment the payer makes at its own risk unless it applies under sub-section (2).
Threshold questions
- Is the payee a non-resident other than a company, or a foreign company
- Is the payment interest or any other sum chargeable to tax under the Act, and not salary
- Has the sum been credited to any account, including a suspense account, or paid, whichever is earlier
- Is the transferor of immovable property resident, so that section 194-IA applies, or non-resident, so that this section applies
- Where the payer considers that the whole sum is not income, has the question been taken to the Assessing Officer under sub-section (2)
- Has the payee's residential status been settled for the year of payment
In practice
The recurring disputes.
Hardship compensation and transit rent paid to a non-resident member
The section applies only to a sum chargeable under the Act; the Supreme Court in GE India Technology Centre held that the payer is bound to deduct only if the tax is assessable in India. The Mumbai Tribunal has held compensation and transit rent paid to non-resident members to be capital and not taxable: in Narayan Devarajan Iyengar (May 2023), where a draft order under section 144C and the Dispute Resolution Panel's directions had enhanced the addition, and in Mildred Ponnoth (July 2024), where the Panel had directed taxation as other sources. Deduction under this section was not in issue in either. On that line the payment is not a sum chargeable and nothing is to be deducted. The Revenue's argument is the one put in those cases, that the payment is an additional benefit beyond a new flat and is income from other sources, which leaves a developer who does not deduct exposed as an assessee in default. For resident occupants the Bombay High Court held in Sarfaraz S. Furniturewalla, a writ between private parties, that transit rent is not rent for section 194-I, and in Ganga Appa Mhaskar (April 2026) a Division Bench directed a developer to pay the amount it had deducted from transit rent to the occupants and to seek its own relief from the Department, in an order in which the Income Tax Department is not shown as a party or as appearing, although the order contemplates that the deduction may have been made on its directions; neither concerned a non-resident or this section. No order applying GE India to a redevelopment payment was found, so developers who are unsure apply under sub-section (2).
A non-resident's cash exit or sale
When a non-resident member exits a redevelopment for cash, or sells the new flat, the buyer or developer deducts under this section at the rates in force on the sum chargeable, since section 194-IA does not apply to a non-resident transferor. The payer's argument is that only the gain element is chargeable and deduction may be limited to it. The Revenue's argument is that sub-section (2) exists for a payer who considers that the whole sum is not income, and a payer who computes the gain himself without that route takes the risk of default. Where the payment is cash for rights rather than land or building, the computation itself is contested, including whether section 50C applies, as in Yasin Moosa Godil and Chiranjeev Lal Khanna.
Consideration in kind
A developer delivering a new flat or extra area to a non-resident member pays nothing in cash. Sub-section (1) speaks of a sum, and of credit or payment in cash, by cheque or draft or by any other mode, and the member's argument is that a flat is not a sum. The Revenue's argument is that "any other mode" is wide enough, and that the value of what the member receives may be chargeable, for example under section 56(2)(x) where extra area is bought below stamp duty value; in June Alice Fernandes (August 2026) the Mumbai Tribunal upheld an addition under the predecessor clause, section 56(2)(vii)(b), against a non-resident who bought a flat in a redeveloped building. The point has not been decided under this section.