What is FTS and NRI Tax deduction under section 195

[megri]

Royalty and Fees for Technical Services (FTS)" payable by the Government or an Indian concern is a tax term in India. It applies to payments made for the use of:

• Intangible property: This could be intellectual property like patents, copyrights, trademarks, or technical know-how.
• Technical expertise: This includes fees paid for specific services like consultancy, design, technical assistance, or training related to the intangible property.

In your scenario:

An NRI (Non-Resident Indian) rendering coding services to an Indian company in Delhi might fall under FTS depending on the nature of the service. Here's why:

• If the NRI is simply coding based on specifications provided by the Indian company, it's unlikely to be FTS. It would be considered regular service income.
• However, if the NRI is providing expertise beyond basic coding, like:
  • Designing a unique software architecture
  • Transferring knowledge on a proprietary coding technique
  • Training the Indian company's staff on the code
• Then, it could be considered FTS.

Tax implications:

• If the income is classified as FTS, the Indian company is required to withhold a tax at source (TDS) before paying the NRI.
• The current withholding tax rate on FTS for non-residents is 20% (as of July 18, 2024). This may be reduced if there's a Double Taxation Avoidance Agreement (DTAA) between India and the NRI's country of residence.

Recommendation:

• It's best for the NRI and the Indian company to consult a tax professional to determine if the service falls under FTS and the applicable tax implications. They can advise on the most tax-efficient structure for the agreement.

[megri]

FTS stands for Fees for Technical Services. In India, it's a tax term used for payments made for:

• Expertise: This includes fees paid for specific services like consultancy, design, technical assistance, or training related to some technical knowledge.
• Use of intangible property: This could be intellectual property like patents, copyrights, trademarks, or specific technical know-how.

When FTS applies:

Imagine an Indian company hires an NRI (Non-Resident Indian) for coding services. Here's how FTS might come into play:

• Basic coding based on specifications: This wouldn't be FTS. It's considered regular service income.
• Services beyond basic coding: If the NRI provides expertise like:
  • Designing a unique software architecture
  • Transferring knowledge on a proprietary coding technique
  • Training the Indian company's staff on the code
• Then, it could be considered FTS.

Tax implications of FTS:

• If the income is classified as FTS, the Indian company is required to withhold a tax at source (TDS) before paying the NRI.
• The current withholding tax rate on FTS for non-residents is 20% (as of July 18, 2024). This may be reduced if there's a Double Taxation Avoidance Agreement (DTAA) between India and the NRI's country of residence.

[megri]

Whether technical content writing with HTML coding for an Indian company by an NRI falls under FTS depends on the specific nature of the work. Here's a breakdown:

What likely isn't FTS:

• Simple content writing: If the NRI is primarily writing technical content like user manuals, guides, or articles without significant use of their own technical expertise, it's unlikely to be FTS. It would be considered regular service income.
• Basic HTML coding: Basic HTML coding for formatting and layout purposes wouldn't necessarily qualify as FTS either.

What might be FTS:

• Technical content with expertise: If the NRI is:
  • Writing about complex technical subjects requiring specialized knowledge (e.g., software development, engineering concepts)
  • Creating content that incorporates their own technical expertise or proprietary knowledge
  • Developing unique technical writing styles or methodologies
• Advanced HTML coding: If the NRI is using advanced HTML coding techniques to create interactive elements, integrate functionality, or build complex web page structures, it could be considered technical expertise.

The key factors to consider for FTS are:

• Transfer of knowledge: Does the NRI provide any technical knowledge or expertise beyond basic writing and coding?
• Uniqueness of service: Is there something unique or specialized about the content or coding techniques used?

Recommendation:

There can be some ambiguity in this specific case. To be certain, it's best for the NRI and the Indian company to consult a tax professional. They can analyze the specific content writing and coding tasks involved and determine if FTS applies. This will help them understand the:

• Tax implications: Whether TDS needs to be withheld and at what rate.
• Most tax-efficient structure for the agreement: This could involve structuring the work to minimize tax liability or exploring potential benefits of a Double Taxation Avoidance Agreement (DTAA).

[neharani]

Under Indian tax law, Section 195 of the Income Tax Act deals with the taxation of non-resident Indians (NRIs) and foreign entities. Here’s a breakdown of the key concepts:

1. FTS (Fees for Technical Services)


Definition: Fees for Technical Services (FTS) refers to payments made for technical, managerial, or consultancy services rendered by a non-resident or foreign entity.

Tax Deduction:

• Under Section 195, any person responsible for making payments to non-residents, including FTS, is required to deduct tax at source (TDS) before making the payment.
• The TDS rate on FTS depends on whether the payment is covered under a Double Taxation Avoidance Agreement (DTAA) between India and the country of the non-resident. If a DTAA exists, the rate may be lower than the standard rate prescribed under Indian tax law.
• The payer must ensure compliance with both the domestic tax laws and the provisions of any applicable DTAA.

2. NRI Tax Deduction


Definition: NRIs are individuals who are residents of a foreign country but have income sources in India. This income can include salaries, interest, dividends, capital gains, etc.

Tax Deduction under Section 195:

• Section 195 mandates that any payment made to a non-resident (including NRIs) must be subject to TDS. This includes various types of income such as interest, royalties, and fees for technical services.
• The TDS rate applicable can be as per the Indian tax laws or as per the provisions of the DTAA, if applicable.
• The payer is responsible for deducting the tax and depositing it with the Indian government before making the payment to the non-resident.

Key Points:

1. Compliance: Ensure that the correct TDS rate is applied based on the nature of the payment and any applicable DTAA. Non-compliance can lead to penalties.
2. Documentation: Proper documentation and filing are crucial. This includes obtaining a Tax Deducted at Source (TDS) certificate and filing TDS returns.
3. Refunds: If excess tax is deducted, NRIs can claim refunds by filing their income tax returns in India.
4. DTAA Benefits: NRIs and foreign entities should review DTAA provisions to understand the benefits and possibly reduce their tax liability.

For accurate application of these rules and rates, it is advisable to consult with a tax professional or financial advisor, especially for complex cases involving international tax treaties and multiple jurisdictions.

[SwatiSood]

Under Section 195 of the Income Tax Act in India, FTS (Fees for Technical Services) and NRI (Non-Resident Indian) tax deduction are provisions that govern the taxation of payments made to non-residents.

Fees for Technical Services (FTS)


Definition: FTS refers to payments made for technical services provided by a non-resident. These services could be related to expertise, advice, or assistance in the fields of engineering, technology, or other specialized fields.

Tax Deduction Under Section 195:

1. Taxability:
   • Payments for FTS are subject to tax in India, and the person making the payment is required to deduct tax at source (TDS) before making the payment to the non-resident.
2. Rate of TDS:
   • The rate of TDS on FTS depends on the nature of the services and the tax treaties between India and the country of the recipient. If there is a Double Taxation Avoidance Agreement (DTAA) between India and the non-resident’s country, the rate specified in the DTAA will apply. If there is no DTAA, the standard rate under the Income Tax Act will apply.
3. Filing Requirements:
   • The deductor must obtain a Tax Deduction and Collection Account Number (TAN) and file TDS returns to the Income Tax Department. The deductor also needs to issue a TDS certificate to the non-resident.

Non-Resident Indian (NRI) Tax Deduction


Definition: NRI refers to individuals who are residents of other countries but have income sources in India. Taxation of NRI income in India is governed by Section 195, among other provisions.

Tax Deduction Under Section 195:

1. Taxability:
   • NRIs are required to pay tax on income earned in India. This includes interest income, dividends, capital gains, and income from other sources. Section 195 mandates that tax must be deducted at source on such payments.
2. Rate of TDS:
   • The TDS rate for NRIs varies based on the type of income and whether a DTAA exists between India and the non-resident’s country. For instance, interest income from fixed deposits or bonds may be taxed differently compared to income from capital gains.
3. Exemptions and Deductions:
   • NRIs can claim deductions or exemptions as per the applicable provisions of the Income Tax Act or the DTAA, if any. They can also file a tax return in India to claim refunds if excess tax has been deducted.
4. Filing Requirements:
   • The payer of the income must deduct the TDS and file returns with the Income Tax Department. The NRI should obtain a Tax Identification Number (TIN) and can file an income tax return to claim any refunds due.

Key Points:

• Section 195 is crucial for ensuring compliance with tax laws when making payments to non-residents.
• Tax rates and compliance requirements can vary based on the nature of the income and international tax treaties.
• Proper documentation and adherence to filing requirements are essential for both the payer and the recipient.

For accurate and specific advice, consulting a tax professional or advisor familiar with Indian tax laws and international agreements is recommended.

[Diwakar SIngh]

1. Definition: FTS refers to payments made for services that require technical expertise or specialized knowledge. This can include consultancy fees, management services, or any technical support.
2. Taxability: Under Indian tax law, FTS is considered income and is subject to tax in India. Non-residents receiving FTS from Indian sources may be liable to pay tax in India.

NRI Tax Deduction Under Section 195

1. Section 195: This section governs the withholding tax on payments made to non-residents. If a resident (or an Indian entity) makes a payment to a non-resident, they are required to deduct tax at source before making the payment.
2. Applicability: Section 195 applies to various types of payments, including FTS, interest, dividends, and royalties. The rate of tax deduction can vary based on the nature of the payment and the provisions of any applicable Double Taxation Avoidance Agreement (DTAA).
3. Tax Rate: The tax rate on FTS payments to non-residents can range from 40% to 50%, depending on whether the non-resident is an individual or an entity and the nature of the services provided. It may also be lower if a DTAA applies.
4. Compliance: The payer is responsible for deducting the appropriate tax and depositing it with the Indian government. Failure to comply can result in penalties and interest on the amount not deducted.
5. Certificate of Tax Deduction: After deducting the tax, the payer must provide a Tax Deduction Certificate to the non-resident, which can be used to claim credit for taxes paid in India when filing returns in their home country.

[tanjuman]

Section 195 of the Income Tax Act, 1961 governs the deduction of tax at source (TDS) on payments made to non-residents. When payments are made to non-residents or foreign entities, Section 195 requires tax to be deducted on those payments. Let's break down the key aspects:

1. FTS (Fees for Technical Services) under Section 195

• Fees for Technical Services (FTS) refer to payments made to a non-resident for providing technical, managerial, or consultancy services. Examples include payments for engineering, IT services, and management consultancy provided by foreign companies or individuals.
• Tax Deduction: The payer (Indian entity or individual) making the payment is required to deduct tax at source before remitting the payment to the non-resident.
• Tax Rates: The rate of tax on FTS payments to non-residents varies, but it is typically 10% (plus applicable surcharge and cess) under domestic law. However, if a relevant Double Taxation Avoidance Agreement (DTAA) is in place, the tax rate specified in the treaty may apply, often at a lower rate.
• The deduction applies regardless of whether the payment is made within India or outside India, as long as the income accrues or arises in India.

2. NRI Tax Deduction under Section 195

• Non-Resident Indians (NRIs) are subject to tax in India on any income that accrues or arises in India. Payments made to NRIs, such as rent, dividends, or capital gains, are subject to TDS under Section 195.
• Types of Income: The section covers various types of income, including:
  • Rent
  • Interest on loans or deposits
  • Capital gains from the sale of property
  • Income from investments (e.g., dividends)
• Tax Deduction: Like FTS, tax must be deducted at source when making payments to NRIs. The rates vary depending on the nature of the payment:
  • Interest on loans or deposits: Typically 20%
  • Long-term capital gains (e.g., from sale of property): 20% for properties held for more than 2 years.
  • Short-term capital gains: Based on applicable slab rates or 30% in some cases.

3. Compliance under Section 195

• Form 15CA/15CB: Before remitting any payment to a non-resident, the payer must file Form 15CA with the income tax department, declaring the payment and TDS details. In certain cases, a CA Certificate (Form 15CB) is also required to certify the amount of tax to be deducted.
• Lower/Nil Deduction: If the non-resident believes that the income is not taxable or should be taxed at a lower rate, they can apply for a certificate from the tax department for a lower or nil deduction of TDS under Section 195(2).

[harpreetkaur]

1. FTS (Fees for Technical Services) under Section 195:


Fees for Technical Services (FTS) refers to payments made to non-residents for managerial, technical, or consultancy services. Under Section 195, any payment to a non-resident for such services is subject to withholding tax if the service is provided in India. The tax rate on FTS depends on the Double Taxation Avoidance Agreement (DTAA) between India and the non-resident's home country.

• TDS Rate: The default rate under domestic tax laws is 10% (plus applicable surcharges and cess). However, this rate may be lower if a relevant DTAA exists between India and the non-resident's home country, which could provide tax relief or reduced rates.

2. NRI Tax Deduction under Section 195:


Payments to an NRI, such as income from rent, capital gains, interest, or business profits, are also subject to TDS under Section 195. When an NRI earns income in India, the payer must deduct tax before making the payment.

• TDS Rate for NRIs: The tax rates vary depending on the type of income:
  • Interest income: 20% (plus applicable surcharges and cess).
  • Rent: 30%.
  • Capital gains: Varies based on the type of asset sold. Short-term capital gains are taxed at 15%, while long-term capital gains may be taxed at 10% or 20%.
  If a DTAA applies, the rates can be lower, and the NRI can avail of the reduced rate by submitting a Tax Residency Certificate (TRC) from their country of residence.