Objectives & Agenda : To understand the process involved in making an Application to Assessing Officer for Lower withholding in case of payments to non-residents by the Payer [Sec 195(2)] or the request by the recipient for No withholding [Sec 195(3)]. We shall also look at procedural aspects involved and relevant caveats to be kept in mind.

1. Application for Lower/No Withholding of Tax:
Sec 195 (2) & (3)
CA Jugal Gala

2. Credits and Acknowledgments
V Thirumal

3. Legends used in the Presentation
TDS Tax Deducted at Source
AO Assessing Officer
DTAA Double Taxation Avoidance Agreements
CBDT Central Board of Direct Taxes

4. Presentation Schema
Sec 195(1) – TDS on
Other Sums Paid to
Non-residents
Sec 195(2) –
Application to AO
by Payer
Amendment by
Union Budget 2019
Application under
Sec 195(3)
Sec 195(3) –
Application to AO
by Recipient
Rule 29B –
Application under
Sec 195(3)
Conditions and
Validity
Contents of Form
15C
Contents of Form
15D
Documents
Required
Practical Issues
Relevant
Considerations

5. Sec 195(1) – TDS on Other Sums Payable to Non-residents
Any person
responsible for Paying
Interest
Any other sum
chargeable to tax
a non-resident
Other than interest referred to in
• Sec 194LB [Int. from Infrastructure debt fund],
• Sec 194LC [Int. on monies borrowed in foreign
currency],
• Sec 194LD [Int. from Bonds and Govt. securities]
Other than salary
or to
At the time of
credit or payment
Shall deduct tax at
the rates in force
whichever is earlier
Deduction shall be made even by a non-resident payer if for the non-resident
recipient, the sum is chargeable to tax as per Income-tax Act, 1961 (“the Act”)

6. Sec 195(2) – Application to AO by Payer
And after such determination, tax shall
be deducted only on that proportion
To determine the appropriate
proportion of such sum chargeable
He may make an
application to the AO
Considers that the whole of such
amount would not be chargeable
in case of the recipient
Any sum chargeable under
the Act (other than salary)
Where a person responsible
for paying to a non-resident

7. Application under Sec 195(2)
No form or rule is prescribed for this application
Plain paper request is to be made to the AO to determine the proportion chargeable
Application made shall be for determination of proportion of income not chargeable to tax and not for determining the
rate of deduction of TDS as it shall be made as per the rates in force
AO is the sole authority to decide whether a sum is not chargeable to tax i.e. payer cannot refrain from deducting TDS
without an order of AO on the basis that the sum was not chargeable to tax

8. Amendment by Union Budget 2019
Union Budget 2019 has amended Sec 195(2) enabling CBDT to prescribe form and manner of applications under
195(2) and additionally, the manner of determination of appropriate portion of sum chargeable to tax
It is expected that electronic process and form would be prescribed by the CBDT streamlining the process which
is currently manual
This will reduce hardships for the assessee and help the Revenue in faster processing of such applications and
having better monitoring over foreign payment transactions

9. Sec 195(3) – Application to AO by Recipient
Where such certificate is granted
and is in force, the payer shall not
deduct TDS under Sec 195
for the grant of a certificate
authorising him to receive such
interest or other sum without TDS
may make an application in the prescribed
form [Form 15C or 15D] to the AO
any interest or other sum on
which income-tax has to be
deducted under Sec 195
Any person entitled to receive

10. Rule 29B – Application under Sec 195(3)
Application can be made by
Banking company which is
- neither an Indian company nor a company which provides
dividends within India, and
- which carries on operations in India through a branch
For any income by way of interest,
not being interest on securities, or
any other sum, not being dividends
Any other person who carries on a business or
profession in India through a branch
For any sum, not being
interest or dividends
In Form No. 15C In Form No. 15D
in so far as it is receivable by such branch on its own account and not on behalf
of its head office or any branch situated outside India, or any other person

11. Conditions and Validity
• The certificate shall be valid for the FY specified therein, unless it is cancelled by the AO at any time before the expiry of FY
• Application for fresh certificate may be made after the expiry of the period of validity, or within 3 months before the expiry
The person concerned has been regularly assessed to income-tax in India and has furnished the returns of income for all AYs for
which such returns became due on or before the date on which the application is made
The person is not in default or deemed to be in default in respect of any tax (including advance tax and self assessment tax),
interest, penalty, fine, or any other sum payable under the Act
And in case of person other than banking company
• he has been carrying on business or profession in India continuously for a period of not less than 5 years immediately
preceding the date of the application, and
• the value of the fixed assets in India of such business or profession as shown in his books for the PY which ended
immediately before the date of the application or, where the accounts in respect of such PY have not been made up before
the said date, the PY immediately preceding that year, exceeds Rs. 50 lakhs
On satisfaction of the conditions, the AO shall grant the certificate where it will not be prejudicial to the interest of the revenue

12. Contents of Form 15C
Application by a banking company for a certificate under Sec 195(3)
To
The Assessing Officer,
Sir,
I, _________________ being the principal officer of [name of the banking company] hereby declare :
(a) That ____________________ is a banking company which is neither an Indian company nor a company which has made
the prescribe d arrangements for the declaration and payment of dividends within India and which is operating in India
through a branch(es) at ___________________;
(b) that the head office of the said company is situated at [name of the place and country];
(c) that the said company is entitled to receive interest (other than ‘Interest on securities’) and other sums not
being dividends, chargeable under the provisions of the Income -tax Act, 1961, during the financial year ____
(d) that the company fulfils all the conditions laid down in Rule 29B of the Income-tax Rules, 1962.

13. Contd.
I, therefore, request that a certificate may be issued authorising the said company to receive interest other than interest on
securities (other than interest payable on securities referred {to in proviso to section 193) and other sums not being
dividends, without deduction of tax under sub-section (1) of section 195 of the Income-tax Act, 1961, during the financial
year___________ .
I hereby declare that what is stated in this application is correct.
Date _________________.
Signature
Address

14. Contents of Form 15D
Application by a person other than a banking company for a certificate under Sec 195(3)
To
The Assessing Officer,
Sir,
I, ______________________ , being the principal officer of we [name of the person, firm or company entitled to receive
sums other than interest and dividends] do hereby declare :
(a) that I/________________ [name of the firm, company, etc.] am/is a non-resident assessee (not being a banking
company) carrying on business/profession in India through a branch(es) by name(s) having office(s) at ____________ ;
(b) that my head office/the head office of [name of the firm, company, etc.] is situated at [name of the place and country]
(c) that I/________________ [name of the firm, company, etc.] am/is entitled to receive income (other than dividends and
interest) chargeable under the provisions of the Income-tax Act, 1961, during the financial year _____________;
(d) that I/________________ [name of the firm, company, etc.] fulfil(s) all the conditions laid down in rule 29B of the
Income-tax Rules, 1962.

15. Contd.
I, therefore, request that a certificate may be issued authorising me/_____________ [name of the firm, company, etc.] to
receive income other than interest or dividends without deduction of tax under sub-section (1) of section 195 of the
Income-tax Act, 1961, during the financial year ____________ .
I hereby declare that what is stated in this application is correct.
Date ___________.
Signature
Address

16. Documents Required
Agreement Binding
the Transaction
Form 26AS of
Recipient
Proof of No
Outstanding Demand
PAN and TAN of
Parties Involved
Citizenship Proof of
Non-resident
Guideline Valuation in
case Immovable
Property is Involved
Passports
Bank Statements and
Details of Loan, if any
Power of Attorney, if
Authorised
Representative
In practice, following documents and clarifications may be requested by the AO to substantiate the application

17. Practical Issues
No facility for online application has been provided
No time limit is prescribed for the AO to process an application and give an order
Order made by the AO under Sec 195 (2) & (3) rejecting the application is not an appealable order

18. Relevant Considerations
Information on payments made without deduction of TDS on part of payment or no deduction of TDS,
shall be disclosed by the Payer in Form 15CA
Order obtained by the Payer under Sec 195(2) or Order under 195(3) received from the recipient shall
be disclosed in Form 15CA
TDS deduction shall be made at the rates in force which includes the rates as per DTAAs, so TDS shall
be at rates of Income-tax act or DTAA whichever is lower
TDS shall be deducted as per the amount credited to the recipient if the payment happens at a later
point of time. Effect of Foreign exchange during the period need not be considered
Generally, certificates under 195(2) and 195(3) are granted within 1 or 2 hearings
When applied under 195(3) for no withholding of tax, the certificate is preferably granted for 1 or 0.5%
of tax deduction

19. Thank You
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