Section 195 of the Income Tax Act
Income-tax Act, 2025: s.393
Section 195 of the Income-tax Act, 1961 corresponds to section 393 (Tax to be deducted at source) of the Income-tax Act, 2025.
Read section 393 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 195 is Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (432 ITR 471), cited in 914 of the 2,836 judgments on BharatTax that turn on this section.
Leading authorities on Section 195
Payments for the supply or use of computer software, where there is no transfer of copyright but only a right to use the copyrighted product, are generally considered business profits and not 'royalty' or 'fees for technical services' under the Income Tax Act, 1961 or relevant DTAAs. This principle also applies to transponder fees, which are not taxable as royalty.
A business liability that has definitely arisen in an accounting year is deductible even if it needs to be quantified and discharged later, as long as its incurring is certain and can be reasonably estimated.
Tax must be deducted at source from payments made to a non-resident under Section 195 only if such payment is chargeable to tax in India. The Assessing Officer bears the onus to establish that the payments made are indeed chargeable to tax under the Income Tax Act.
For the purpose of computing book profits under Section 115J, arrears of depreciation, including those arising from assets working extra shifts, are a necessary charge on profits if debited to the profit and loss account and are allowable as such.
Payments by Indian residents to non-resident foreign software suppliers for software are considered royalty, constituting income deemed to accrue in India under section 9(1)(v), thereby requiring tax deduction at source under section 195.
Amendments to the Income-tax Act that are curative, clarificatory, or beneficial in nature apply retrospectively from the date the original statutory provision was introduced, even if not explicitly stated.
Income from offshore supply of goods and services is not taxable in India if the entire transaction, including transfer of ownership and payments, occurs outside India.
For fees for technical or consultancy services to 'make available' technical knowledge or know-how under a DTAA, the service must transmit such knowledge, allowing the recipient to derive an enduring benefit and utilize it independently in the future.
Payments for the use of equipment, such as satellite transponders, do not constitute 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961, or under applicable tax treaties, especially when there is no transfer of the right to use a process or underlying technology.
An amendment to the Income Tax Act, such as the Finance Act, 2012 amendment to Section 9(1)(vi) defining royalty, does not automatically override or alter the definition of 'royalty' as provided in a Double Taxation Avoidance Agreement (DTAA) unless the DTAA itself is bilaterally amended. The definition of royalty in a DTAA remains unaffected by unilateral changes to domestic law.
