Form 27Q - TDS Return for NRI Payments

Introduction

In a globalized economy, Indian businesses and individuals frequently make payments to Non-Resident Indians (NRIs) or foreign companies. Whether it is paying rent to an NRI landlord, professional fees to a foreign consultant, or interest on an overseas loan, the tax implications are stringent.

Unlike payments to residents, where TDS rates are straightforward, payments to non-residents are governed by Section 195 of the Income Tax Act. The government wants to ensure that tax is collected before the money leaves Indian shores. This is where Form 27Q comes in.

It is the quarterly statement that reports every single rupee of tax deducted on non-salary payments made to foreigners. For FY 2025-26, this form has become even more critical due to the recent overhaul in Capital Gains tax rates (LTCG reduced to 12.5%, STCG increased to 20%). In this guide, we will decode the complexities of Form 27Q, the mandatory "Grossing Up" rule, and the essential connection with Form 15CA/15CB.

Table of Contents

1. What is Form 27Q?
2. Who Must File Form 27Q?
3. Form 27Q vs Form 24Q vs Form 26Q
4. Due Dates for FY 2025-26
5. Key TDS Rates for NRIs (2025 Update)
6. The "Surcharge and Cess" Calculation Rule
7. The Role of Form 15CA and 15CB
8. Penalties for Late Filing (Section 234E)
9. How to Issue TDS Certificate (Form 16A)
10. FAQs

What is Form 27Q?

Form 27Q is a quarterly TDS return filed by a deductor (payer) to report tax deductions on payments made to Non-Resident Indians (NRIs) and Foreign Companies.

It covers all payments other than salary. (Salary to NRIs is reported in Form 24Q).

The form acts as a detailed ledger containing:

• Details of the Payer (TAN, Name).
• Details of the NRI Payee (PAN, Address, Country).
• Nature of Payment (Interest, Dividend, Royalty, Capital Gains).
• TDS deducted and deposited (Challan details).

Who Must File Form 27Q?

Any person, whether an individual, a firm, or a corporate entity, who makes a payment to a non-resident and deducts TDS under Section 195 (or related sections) must file Form 27Q.

• Example: You buy a property from an NRI seller. You deduct TDS at 20% (plus surcharge). Since the seller is an NRI, you must file Form 27Q, not Form 26QB (which is only for resident sellers).

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Form 27Q vs Form 24Q vs Form 26Q

Confusion often arises between these three forms.

Form

Applicability

Payee Status

Nature of Payment

24Q

Salary Payments

Resident & Non-Resident

Salary

26Q

Non-Salary Payments

Resident Only

Interest, Contractor, Rent, Prof. Fees

27Q

Non-Salary Payments

Non-Resident / Foreign Co.

Interest, Dividend, Royalty, Capital Gains

Due Dates for FY 2025-26

Like all TDS returns, Form 27Q follows a quarterly schedule.

Quarter

Period

Due Date for Filing

Q1

April - June

July 31, 2025

Q2

July - September

October 31, 2025

Q3

October - December

January 31, 2026

Q4

January - March

May 31, 2026

Key TDS Rates for NRIs (2025 Update)

The Finance Act 2024-25 introduced significant changes to capital gains tax rates, which directly impact TDS on NRI property and share sales.

Nature of Payment

Section

TDS Rate (Base)

Interest Income

195

20%

Dividend

195

20%

Royalty / Tech Fees

115A

20%

LTCG (Listed Shares)

115E / 112A

12.5% (Changed from 10%)

LTCG (Unlisted/Property)

112(1)(c)

12.5% (Changed from 20%)

STCG (Listed Shares)

111A

20% (Changed from 15%)

Sportsmen/Entertainers

194E

20%

Note: These are base rates. You must add Surcharge and Cess (See below).

The "Surcharge and Cess" Calculation Rule

For Resident payments (Form 26Q), we usually deduct TDS at a flat rate (e.g., 10% on Rent) without adding cess.

For Non-Residents, this is different.

TDS for NRIs must include Surcharge (if applicable) and Health & Education Cess (4%).

Calculation Formula:

TDS Rate = (Base Rate + Surcharge) + 4% Cess.

• Example: Payment of ₹60 Lakhs (LTCG Property) to NRI.

  1. Base Rate: 12.5%
  2. Surcharge: 10% (since income > ₹50L).
  3. Effective Rate: 12.5 + 1.25 (Surcharge) + 0.55 (Cess) = 14.3%.

The Role of Form 15CA and 15CB

You cannot file Form 27Q in isolation. The banking system requires clearance before remitting money abroad.

1. Form 15CB: A certificate from a Chartered Accountant certifying that the tax has been correctly deducted. It is mandatory if the payment exceeds ₹5 Lakhs and is taxable.
2. Form 15CA: A declaration by the Remitter (You) submitted online. It references the 15CB certificate.

Flow: Get 15CB from CA →File 15CA online →Submit proof to Bank →Remit Money →File Form 27Q.

Penalties for Late Filing (Section 234E)→→→

• Late Fee: ₹200 per day for every day of delay until the return is filed. The total fee cannot exceed the TDS amount.
• Penalty (Section 271H): If the return is not filed within one year of the due date, a penalty ranging from ₹10,000 to ₹1,00,000 can be levied.

How to Issue TDS Certificate (Form 16A)

Since the payee is an NRI, they need proof of tax deduction to claim credit in their Indian ITR or to claim Foreign Tax Credit in their home country.

• You must generate Form 16A from the TRACES portal within 15 days of filing the Form 27Q return.
• Send this certificate to the NRI via email.