The Section 195 of Income Tax Act, 1961 imposes an obligation on the person responsible for payment to non-resident to deduct tax at source at the time of payment or at the time of credit of the sum to the account of the non-resident.
Only the person making payment for the services received by him from a non-resident individual can deduct withholding tax. And it is obligatory on the part of the payee to deposit the deducted withholding tax with the government. The withholding tax is to be deducted as per the prescribed rates stated in the act or at the rates mentioned in the Double Taxation Avoidance Agreement (DTAA) whichever is beneficial for the non-resident individual.
Tax deducted at source (TDS) is the amount that is to be deducted at the time of making payment to the contractors, professionals etc. whereas withholding tax is the amount deducted in advance i.e. before paying the amount to the payee withholding tax is deducted for paying the tax to the government.
Other Certifications - Form 15ca And 15cb
Form 15CA – It is a Declaration of Remitter and is used as a tool for collecting information in respect of payments which are chargeable to tax in the hands of recipient non-resident.
Form 15CB – It is the Tax Determination Certificate where the Issuer CA examines the remittance having regard to chargeable provisions under Section 5 and 9 of Income-tax Act along with provisions of Double Tax Avoidance Agreements with the Recipient’s Residence Country.
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