We are remitting income on mutual fund units to a foreign company, and separately paying on Global Depository Receipts. Do we deduct under section 195 at rates in force, and can the payee get a lower deduction certificate?
No. Where one of these three sections applies, it and not section 195 supplies the rate, and the rate is a figure fixed in the section rather than the 'rates in force'. Section 196A covers income in respect of units of a Mutual Fund specified under clause (23D) of section 10, or from the specified company referred to in the Explanation to clause (35) of section 10, paid to a non-resident not being a company or to a foreign company, at twenty per cent; it alone carries a proviso letting the rate fall to the treaty rate where an agreement under section 90(1) or section 90A(1) applies and the payee has furnished the certificate referred to in section 90(4) or section 90A(4). Section 196B covers income in respect of units referred to in section 115AB, and long-term capital gains on their transfer, payable to an Offshore Fund. Section 196C covers interest or dividends on bonds or Global Depository Receipts referred to in section 115AC, and long-term capital gains on their transfer, payable to a non-resident. Sections 196B and 196C each now carry a three-limb rate: ten per cent on the income, ten per cent on long-term capital gains where the transfer takes place before 23 July 2024, and twelve and one-half per cent where it takes place on or after that date. None of the three sections is in the list in section 197(1).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-07-23, reported as Sections 196A, 196B and 196C of the Income-tax Act, 1961, as amended up to 2024. It bears on section 196A, section 196B, section 196C, section 195, section 197, section 115AB, section 115AC, section 10(23D), section 10(35), section 90, section 90A of the Income Tax Act 1961, in TDS Defaults, Capital Gains and Residence & Treaty Benefit matters.
A remitter who reaches for section 195 by reflex gets three things wrong at once. The rate is wrong, because these sections fix a figure and section 195 imports the rates in force. The machinery is wrong, because there is no application to the Assessing Officer under section 195(2) for a payment these sections govern. And the relief is wrong, because the section 197 certificate the payee expects to be able to obtain does not exist here — the list in section 197(1) runs through the 194 series and ends at section 195, and sections 196A, 196B and 196C are simply not in it. A payee told to apply for a certificate will apply, be refused, and lose the time. The difference between the three sections is worth holding precisely. Section 196A is the only one with a treaty proviso, and the proviso is conditional: the agreement under section 90(1) or section 90A(1) must apply to the payee and the payee must have furnished the certificate referred to in section 90(4) or section 90A(4). Without that certificate in hand the deductor applies twenty per cent, whatever the treaty says. Section 196A is also the only one with a carve-out, in sub-section (2), for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C have neither. What they have instead is a date. Since 23 July 2024 each carries a rate that splits according to when the transfer 'takes place' — ten per cent before that day, twelve and one-half per cent on or after it — while the income limb, interest or dividends under section 196C and unit income under section 196B, stays at ten per cent throughout. A deductor who applies the gains rate to the income limb, or who takes the date of remittance instead of the date of transfer, is short or excess by two and a half points on a figure that is usually large. Both errors surface as section 201 demands on the payer, not on the payee who has already been paid.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 196A, under the heading 'Income in respect of units of non-residents', requires any person responsible for paying to a non-resident, not being a company, or to a foreign company, any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or from the specified company referred to in the Explanation to clause (35) of section 10, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, to deduct income-tax thereon at the rate of twenty per cent. Its proviso, against which the section carries the footnote 'Inserted by the Finance Act, 2023, w.e.f. 1-4-2023', reads: 'Provided that where an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A applies to the payee and if the payee has furnished a certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, as the case may be, then, income-tax thereon shall be deducted at the rate of twenty per cent or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.' Sub-section (2) provides that notwithstanding sub-section (1), no deduction of tax shall be made from any income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family where the units have been acquired from the Unit Trust of India out of the funds in a Non-resident (External) Account maintained with any bank in India or by remittance of funds in foreign currency, in accordance, in either case, with the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder. There is no sub-section (3). Section 196B, under the heading 'Income from units', applies where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, and requires the person responsible for making the payment, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, to deduct income-tax thereon at the rate of — (a) ten per cent in respect of income from units referred to in clause (i) of sub-section (1) of section 115AB; (b) ten per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent in respect of such long-term capital gains where the transfer takes place on or after the 23rd day of July, 2024. The section carries against that three-limb rate the footnote that it was substituted for 'at the rate of ten per cent' by Act No. 15 of 2024, w.e.f. 23-7-2024; the text as it stood earlier in 2024 still prints the flat ten per cent. Section 196C, under the heading 'Income from foreign currency bonds or shares of Indian company', applies where any income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC, or by way of long-term capital gains arising from the transfer of such bonds or Global Depository Receipts, is payable to a non-resident, and requires deduction at the same trigger at the rate of — (a) ten per cent in respect of income by way of interest or dividends; (b) ten per cent in respect of long-term capital gains where the transfer takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent where it takes place on or after that date. Section 196C as printed carries no proviso and no sub-section (2). All three sections are provisions of the Income-tax Act, 1961.
Each of the three sections supplies its own rate for the payment it covers, and that rate is a figure in the section rather than the rates in force which section 195 imports. Section 196A charges twenty per cent, reducible to the treaty rate against a certificate under section 90(4) or section 90A(4) by virtue of its proviso, and carries in sub-section (2) an express carve-out for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C each charge ten per cent on the income limb, and on the long-term capital gains limb ten per cent where the transfer takes place before 23 July 2024 and twelve and one-half per cent where it takes place on or after that date; neither contains a treaty proviso and neither contains a carve-out. None of the three sections appears in the list of sections in section 197(1), so no certificate for deduction at a lower rate or for no deduction can be given under that section for a payment governed by them.
Not applicable — this is a statement of statutory text taken from the departmental pages for the three sections, together with one comparison drawn on the face of the statute: section 197(1) lists the sections for which a lower or nil deduction certificate may be given, and these three are not among them. No judicial reasoning is involved.
…deduct income-tax thereon at the rate of— (a) ten per cent in respect of income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC; (b) ten per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place on or after the 23rd day of July, 2024.
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Handle my notice → Ask a CA on WhatsAppNo. Where one of these three sections applies, it and not section 195 supplies the rate, and the rate is a figure fixed in the section rather than the 'rates in force'. Section 196A covers income in respect of units of a Mutual Fund specified under clause (23D) of section 10, or from the specified company referred to in the Explanation to clause (35) of section 10, paid to a non-resident not being a company or to a foreign company, at twenty per cent; it alone carries a proviso letting the rate fall to the treaty rate where an agreement under section 90(1) or section 90A(1) applies and the payee has furnished the certificate referred to in section 90(4) or section 90A(4). Section 196B covers income in respect of units referred to in section 115AB, and long-term capital gains on their transfer, payable to an Offshore Fund. Section 196C covers interest or dividends on bonds or Global Depository Receipts referred to in section 115AC, and long-term capital gains on their transfer, payable to a non-resident. Sections 196B and 196C each now carry a three-limb rate: ten per cent on the income, ten per cent on long-term capital gains where the transfer takes place before 23 July 2024, and twelve and one-half per cent where it takes place on or after that date. None of the three sections is in the list in section 197(1). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 196A, section 196B, section 196C, section 195, section 197, section 115AB, section 115AC, section 10(23D), section 10(35), section 90, section 90A of the Income Tax Act 1961. It is reported as Sections 196A, 196B and 196C of the Income-tax Act, 1961, as amended up to 2024. A remitter who reaches for section 195 by reflex gets three things wrong at once. The rate is wrong, because these sections fix a figure and section 195 imports the rates in force. The machinery is wrong, because there is no application to the Assessing Officer under section 195(2) for a payment these sections govern. And the relief is wrong, because the section 197 certificate the payee expects to be able to obtain does not exist here — the list in section 197(1) runs through the 194 series and ends at section 195, and sections 196A, 196B and 196C are simply not in it. A payee told to apply for a certificate will apply, be refused, and lose the time. The difference between the three sections is worth holding precisely. Section 196A is the only one with a treaty proviso, and the proviso is conditional: the agreement under section 90(1) or section 90A(1) must apply to the payee and the payee must have furnished the certificate referred to in section 90(4) or section 90A(4). Without that certificate in hand the deductor applies twenty per cent, whatever the treaty says. Section 196A is also the only one with a carve-out, in sub-section (2), for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C have neither. What they have instead is a date. Since 23 July 2024 each carries a rate that splits according to when the transfer 'takes place' — ten per cent before that day, twelve and one-half per cent on or after it — while the income limb, interest or dividends under section 196C and unit income under section 196B, stays at ten per cent throughout. A deductor who applies the gains rate to the income limb, or who takes the date of remittance instead of the date of transfer, is short or excess by two and a half points on a figure that is usually large. Both errors surface as section 201 demands on the payer, not on the payee who has already been paid. If it applies to you, the first step is this: Identify the payee and the instrument before choosing a section. Section 196A asks whether the income is in respect of units of a Mutual Fund specified under section 10(23D) or from the specified company referred to in the Explanation to section 10(35), and whether the payee is a non-resident not being a company, or a foreign company. Section 196B asks whether the payee is an Offshore Fund and the units are those referred to in section 115AB. Section 196C asks whether the instrument is a bond or Global Depository Receipt referred to in section 115AC.
Section 196A, under the heading 'Income in respect of units of non-residents', requires any person responsible for paying to a non-resident, not being a company, or to a foreign company, any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or from the specified company referred to in the Explanation to clause (35) of section 10, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, to deduct income-tax thereon at the rate of twenty per cent. Its proviso, against which the section carries the footnote 'Inserted by the Finance Act, 2023, w.e.f. 1-4-2023', reads: 'Provided that where an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A applies to the payee and if the payee has furnished a certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, as the case may be, then, income-tax thereon shall be deducted at the rate of twenty per cent or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.' Sub-section (2) provides that notwithstanding sub-section (1), no deduction of tax shall be made from any income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family where the units have been acquired from the Unit Trust of India out of the funds in a Non-resident (External) Account maintained with any bank in India or by remittance of funds in foreign currency, in accordance, in either case, with the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder. There is no sub-section (3). Section 196B, under the heading 'Income from units', applies where any income in respect of units referred to in section 115AB or by way of long-term capital gains arising from the transfer of such units is payable to an Offshore Fund, and requires the person responsible for making the payment, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, to deduct income-tax thereon at the rate of — (a) ten per cent in respect of income from units referred to in clause (i) of sub-section (1) of section 115AB; (b) ten per cent in respect of long-term capital gains arising from transfer of units referred to in section 115AB, which takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent in respect of such long-term capital gains where the transfer takes place on or after the 23rd day of July, 2024. The section carries against that three-limb rate the footnote that it was substituted for 'at the rate of ten per cent' by Act No. 15 of 2024, w.e.f. 23-7-2024; the text as it stood earlier in 2024 still prints the flat ten per cent. Section 196C, under the heading 'Income from foreign currency bonds or shares of Indian company', applies where any income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC, or by way of long-term capital gains arising from the transfer of such bonds or Global Depository Receipts, is payable to a non-resident, and requires deduction at the same trigger at the rate of — (a) ten per cent in respect of income by way of interest or dividends; (b) ten per cent in respect of long-term capital gains where the transfer takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent where it takes place on or after that date. Section 196C as printed carries no proviso and no sub-section (2). All three sections are provisions of the Income-tax Act, 1961. The matter was decided on 2024-07-23 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Each of the three sections supplies its own rate for the payment it covers, and that rate is a figure in the section rather than the rates in force which section 195 imports. Section 196A charges twenty per cent, reducible to the treaty rate against a certificate under section 90(4) or section 90A(4) by virtue of its proviso, and carries in sub-section (2) an express carve-out for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C each charge ten per cent on the income limb, and on the long-term capital gains limb ten per cent where the transfer takes place before 23 July 2024 and twelve and one-half per cent where it takes place on or after that date; neither contains a treaty proviso and neither contains a carve-out. None of the three sections appears in the list of sections in section 197(1), so no certificate for deduction at a lower rate or for no deduction can be given under that section for a payment governed by them.
Not applicable — this is a statement of statutory text taken from the departmental pages for the three sections, together with one comparison drawn on the face of the statute: section 197(1) lists the sections for which a lower or nil deduction certificate may be given, and these three are not among them. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "…deduct income-tax thereon at the rate of— (a) ten per cent in respect of income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC; (b) ten per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place before the 23rd day of July, 2024; (c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place on or after the 23rd day of July, 2024."
It was decided by the CBDT Circulars & Instructions on 2024-07-23 and is reported as Sections 196A, 196B and 196C of the Income-tax Act, 1961, as amended up to 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 196A, section 196B, section 196C, section 195, section 197, section 115AB, section 115AC, section 10(23D), section 10(35), section 90, section 90A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Each of the three sections supplies its own rate for the payment it covers, and that rate is a figure in the section rather than the rates in force which section 195 imports. Section 196A charges twenty per cent, reducible to the treaty rate against a certificate under section 90(4) or section 90A(4) by virtue of its proviso, and carries in sub-section (2) an express carve-out for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C each charge ten per cent on the income limb, and on the long-term capital gains limb ten per cent where the transfer takes place before 23 July 2024 and twelve and one-half per cent where it takes place on or after that date; neither contains a treaty proviso and neither contains a carve-out. None of the three sections appears in the list of sections in section 197(1), so no certificate for deduction at a lower rate or for no deduction can be given under that section for a payment governed by them. It arises in TDS Defaults, Capital Gains and Residence & Treaty Benefit matters, on section 196A, section 196B, section 196C, section 195, section 197, section 115AB, section 115AC, section 10(23D), section 10(35), section 90, section 90A of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Use the section's own rate, not the rates in force. Twenty per cent under section 196A; under sections 196B and 196C, ten per cent on the income and ten or twelve and one-half per cent on long-term capital gains according to whether the transfer took place before or on or after 23 July 2024. Fix the date of transfer in the file. On sections 196B and 196C the whole difference between ten and twelve and one-half per cent is which side of 23 July 2024 the transfer falls, and the section uses the date the transfer 'takes place', not the date of payment or of credit. Deduct at the earlier of the event of credit or payment. All three sections use that trigger — credit of the income to the account of the payee, or payment, whichever is earlier. Take the treaty rate under section 196A only against the certificate. The proviso works where an agreement referred to in section 90(1) or section 90A(1) applies to the payee and the payee has furnished the certificate referred to in section 90(4) or section 90A(4), and it then gives twenty per cent or the treaty rate, whichever is lower. Do not look for the same proviso in section 196B or section 196C. Neither contains one. Whether a lower treaty rate can be applied at deduction under those two sections is not answered by the sections themselves, and that question should be taken on section 90(2) and the authorities on it, not assumed. Do not apply for a certificate under section 197. The list in section 197(1) names sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195. Sections 196A, 196B and 196C are not in it, so the Assessing Officer has no power under section 197 to give a lower or nil deduction certificate for a payment falling under them. Check section 196A(2) before deducting on Unit Trust of India units. No deduction is to be made from income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family where the units were acquired out of a Non-resident (External) Account maintained with a bank in India or by remittance of funds in foreign currency, in accordance with the Foreign Exchange Management Act, 1999 and the rules made under it. Where none of the three sections fits the instrument, go back to section 195 and to the chargeable-sum gateway; the library carries a separate entry on section 195 and Explanation 2 for that.
Superseded by amendment. Two of the three sections have been amended since 2023 and the entry is written against their current text. Section 196A carries the footnote 'Inserted by the Finance Act, 2023, w.e.f. 1-4-2023' against its proviso, which is the treaty limb; before that date the section charged twenty per cent with no statutory route to a treaty rate at the deduction stage. Sections 196B and 196C each carry a footnote recording the substitution of the present three-limb rate for the earlier flat rate by Act No. 15 of 2024 with effect from 23 July 2024, and the earlier text of section 196B still prints the flat ten per cent. That is why the status here is 'superseded by amendment': a payment made in respect of a transfer before 23 July 2024 is governed by words the current text no longer prints. The section 197 point is drawn from the list printed in section 197(1), which names sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195, and does not name any of these three. That is a reading of the list as printed, not a conclusion from any decision. What is not established here is whether a deductor under section 196B or section 196C may apply a treaty rate. Those sections contain no proviso permitting it, unlike section 196A. The entry records that absence and stops there; it does not say that a treaty rate is unavailable, because section 90(2) and the authorities on it are not examined. No judicial decision on any of the three sections is recorded, and nothing is said about how the Offshore Fund definition in section 115AB, or the Global Depository Receipt definition in section 115AC, has been applied. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The three sections are set out here from the Act itself. Section 196A is checked against a second text of the same section, which prints the same words including the proviso and the footnote 'Inserted by the Finance Act, 2023, w.e.f. 1-4-2023'. Section 196B is taken from the text that prints the three-limb rate and the substitution footnote naming Act No. 15 of 2024 with effect from 23 July 2024; the earlier text of the same section prints the flat ten per cent and is used only to confirm what changed. Section 196C is taken from the text that prints the three-limb rate and the same substitution footnote, and which prints no proviso at all. The 'decided on' date on this entry, 23 July 2024, is the date of that substitution and is not the date any of the sections was enacted. WHAT WAS NOT DONE. Sections 115AB and 115AC are not set out here. Their definitions — what an Offshore Fund is, and what bonds and Global Depository Receipts qualify — decide which of these deduction sections applies at all, and neither definition is stated in this entry. A remitter should read them before choosing a section. No text of any of the three sections later than the one used is recorded, so the evidence that the words above are current is those editions and the footnotes they carry, and nothing later. The section 197 comparison rests on the list of sections printed in section 197(1), which the library already relies on in its own entry on section 197 and rule 28AA. Reading that list is the whole of the reasoning; no circular and no judgment was used for it, and none is cited. Whether a lower treaty rate may be applied at deduction under section 196B or section 196C is deliberately left open, because those sections are silent and section 90(2) is not examined here. No successor provision under the Income-tax Act, 2025 is identified for any of the three sections, so none is given. And no judicial decision on any of the three sections is recorded, so the entry rests on the statutory text, the amendment footnotes printed with it, and the list in section 197(1), and it claims nothing beyond those three things. Where a payment does not answer to any of the three descriptions, section 195 governs, and the library carries its own entry on the chargeable-sum gateway there. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Each of the three sections supplies its own rate for the payment it covers, and that rate is a figure in the section rather than the rates in force which section 195 imports. Section 196A charges twenty per cent, reducible to the treaty rate against a certificate under section 90(4) or section 90A(4) by virtue of its proviso, and carries in sub-section (2) an express carve-out for Unit Trust of India units acquired by a non-resident Indian or a non-resident Hindu undivided family out of a Non-resident (External) Account or by remittance in foreign currency. Sections 196B and 196C each charge ten per cent on the income limb, and on the long-term capital gains limb ten per cent where the transfer takes place before 23 July 2024 and twelve and one-half per cent where it takes place on or after that date; neither contains a treaty proviso and neither contains a carve-out. None of the three sections appears in the list of sections in section 197(1), so no certificate for deduction at a lower rate or for no deduction can be given under that section for a payment governed by them.
TaxSphere, “Statutory position — ss.196A, 196B and 196C: three fixed-rate deduction sections for non-residents, only one of which carries a treaty proviso, and none of which is in the s.197 list”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-196a-196b-and-196c-the-three-fixed-rate-non-resident-sections-and-how-they-differ-from-195/ (validity last checked 2026-09-23)
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