When it comes to payments made to non-residents, most taxpayers think of only one thing: TDS under Section 195. But over the years, compliance has gone well beyond merely deducting tax. The Income Tax Department now focuses strongly on reporting, documentation, and information flow—especially in cross-border payments.
This is exactly why Section 195(6) holds such significance. While Section 195 governs the deduction of income tax at source (TDS) on payments made to non-residents, Section 195(6) mandates that the payer must also furnish specific information, regardless of whether the payment is taxable in India.
In other words, even if the tax is not required to be deducted, the obligation to report still exists. This additional layer ensures transparency, prevents wrongful remittances, & keeps the department informed about cross-border transactions involving residents and NRIs.
What Section 195(6) Really Says
Section 195(6) of the Income Tax Act, 1961 states that any person responsible for paying a sum to a non-resident must furnish the prescribed information to the income tax authorities.
A few important points stand out:
- The obligation applies even if the payment is not chargeable to tax in India.
- It applies to all categories of payments, whether it is professional fees, rent, interest, royalty, or reimbursement."
- The obligation is not limited to businesses; individuals making payments to NRIs may also fall under this requirement.
This means the department isn’t only concerned about tax deduction—it also wants clarity on the nature of the payment, the relationship between parties, the underlying contract, & the legitimacy of the remittance.
The practical implication is simple: if you are paying any sum to a non-resident, reporting is compulsory.
How Section 195(6) Connects With TDS Rules for NRI Payments
Even though Section 195(6) itself is focused on furnishing information, it operates as an extension of the broader TDS mechanism under Section 195.
- Section 195 requires deduction of tax at source if a payment to a non-resident is taxable in India.
- Section 195(6) ensures that the department receives accurate transaction-level data for all such payments, making it easier to verify whether TDS was correctly done.
This is why the law specifically highlights that the “person responsible for paying any sum to a non-resident” must submit the details, regardless of the tax outcome.
In practice, this obligation is largely fulfilled through Form 15CA & Form 15CB—the cornerstone documents for foreign remittances.
Also Read: Time Limit for Completion of Fresh Assessments
Why This Reporting Rule Exists
Cross-border transactions are complex. Payments often flow between entities in different tax jurisdictions, & many taxpayers may not fully understand whether a payment is taxable in India.
In earlier years, non-reporting or under-reporting of foreign payments caused significant revenue leakage. Section 195(6) was tightened to ensure that:
- Every outward remittance is reported.
- There is a pre-remittance check by a CA (Form 15CB) in applicable cases.
- Taxability decisions are documented.
- Payments made to NRIs & foreign companies are traceable & auditable.
This ensures that TDS for NRI payments is not just correctly deducted but also correctly reported—which is equally important.
Who Must Comply With Section 195(6)?
The obligation applies to:
- Individuals remitting funds abroad
- Companies making payment to non-residents
- Partnership firms
- LLPs
- Trusts
- Any other person making payment to a non-resident
Examples of scenarios where Section 195(6) applies:
- Paying fees to a foreign consultant
- Sending money to an NRI architect for a project
- Royalty payments to a foreign company
- Buying property from an NRI
- Reimbursing travel or training expenses to a foreign vendor
- Paying interest on a loan taken from an NRI
Whether the income is taxable or not—the details must be furnished.
Consequences of Non-Compliance
Section 195(6) is strict because it ensures visibility into international transactions. If a taxpayer fails to furnish the required information:
- Penalty under Section 271-I may apply.
- The remitting bank may refuse to process the payment.
- The payer may be treated as an assessee in default.
- Reassessment exposure may arise later.
In short, non-compliance can turn a simple foreign remittance into a serious tax issue.
Also Read: When the Tax Department Hits the "Undo" Button
Practical Guidance for Taxpayers Handling NRI Payments
If you are involved in any foreign remittance, keep the following in mind:
- Always determine taxability first: Consult a CA to understand whether the payment is taxable in India. This forms the basis for everything that follows.
- File Form 15CA correctly: Even small mistakes—wrong section selection, misreporting nature of payment—can cause major trouble later.
- Understand when Form 15CB is required: This is a CA certificate that ensures the taxability has been examined & documented properly."
- Keep agreement copies & invoices: In reassessment or scrutiny, agreements are the first documents the AO asks for.
- Never ignore the reporting obligation: Even if tax is not deductible, the information must still be furnished.
Section 195(6) is less about tax deduction & more about compliance discipline.
Why Section 195(6) Matters in Today’s Tax Environment
International payments have increased sharply—freelancers hire foreign vendors, companies outsource global services, individuals buy software subscriptions from abroad, and NRIs receive multiple forms of income from India.
Given this complexity, the tax department uses Section 195(6) as a visibility tool. It prevents misuse, ensures transparency, & strengthens the monitoring of cross-border fund flows.
For taxpayers, understanding this provision means fewer surprises, smoother remittances, & better compliance health.
Conclusion
Section 195(6) of the Income Tax Act is more than a simple reporting rule—it is a mandatory compliance requirement that applies to anyone paying any sum to a non-resident. By ensuring that all relevant information is furnished, even when the income is not taxable in India, the law strengthens the TDS system & helps maintain transparency in NRI and foreign payments.
If you handle foreign remittances, staying compliant with Section 195(6) is not optional—it’s essential.
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