Form 27Q

What is Form 27Q?

Form 27Q is a quarterly TDS return statement that must be filed for tax deducted at source (TDS) on non-salary payments made to non-resident Indians (NRIs) and foreign companies. The Indian Income Tax Act mandates that when payments are made to non-residents, tax must be deducted before remitting the amount.

This form ensures that the Indian government receives its due tax revenue from cross-border transactions while also keeping track of payments made to foreign individuals or entities.

Key Features of Form 27Q:

• Applicable for non-salary payments made to NRIs or foreign entities.
• Filed quarterly with the Income Tax Department.
• Covers a range of income types such as interest, dividend, royalty, commission, and capital gains.
• Mandatory even if TDS is not deducted, ensuring all applicable transactions are recorded.
   

What Sections of the Income Tax Act, 1961 Does Form 27Q Cover?

Form 27Q is a quarterly TDS statement used when tax is deducted at source on certain payments made to non-residents (including foreign companies). In simple terms, if you’ve deducted TDS while making a payment to a non-resident, Form 27Q is typically the form used to report those deductions to the Income Tax Department.

Form 27Q commonly covers TDS deductions made under sections such as:

• Section 195 – TDS on payments (other than salary) made to non-residents: This is the most common section linked to Form 27Q and can include payments like professional fees, interest, royalty, technical services, commissions, etc.
• Section 194E – TDS on payments to non-resident sportsmen/sports associations
• Section 194LB / 194LC / 194LD – TDS on certain interest payments to non-residents: These generally apply to specific kinds of interest income (e.g., infrastructure debt funds, certain borrowings, specified bonds/government securities), depending on the nature of the payment and applicable conditions.
• Other relevant non-resident TDS provisions: Depending on the transaction type, Form 27Q may also be used for reporting other TDS deductions where the payee is a non-resident or foreign company and the payment falls under the scope of the relevant TDS section.

A practical reminder: for non-resident payments, the applicable rate may depend on the Income Tax Act, the DTAA (tax treaty) where applicable, and whether valid documentation (like Tax Residency Certificate) is available.

Why is Form 27Q Required?

The primary objective of Form 27Q is to ensure that all taxable payments made to NRIs and foreign entities are duly taxed before remittance. Without this, there would be loopholes allowing tax evasion and improper financial reporting.

The Income Tax Act of 1961 mandates TDS on cross-border payments to protect government revenues and enforce tax compliance. By deducting tax at source, the government secures its share of revenue upfront instead of relying solely on voluntary tax declarations.

This system benefits both taxpayers and tax authorities:

• Taxpayers avoid last-minute tax burdens at the time of return filing.
• Authorities ensure a steady flow of tax revenue throughout the year.
   

Who Needs to File Form 27Q?

Any individual, business, or entity making non-salary payments to NRIs or foreign entities must deduct TDS and file Form 27Q.

Deductor (Payer)

The deductor is the individual or entity making payments to an NRI. They must:

• Deduct TDS before making the payment.
• File Form 27Q on a quarterly basis.
• Deposit the deducted tax with the government.

Deductee (Payee)

The deductee is the NRI or foreign entity receiving the payment. Their residential status must be classified as per Section 6 of the Income Tax Act, which defines whether a person qualifies as a non-resident for tax purposes.

• NRIs or foreign entities must provide PAN details to avoid a higher TDS deduction rate.
• Without a PAN, TDS may be deducted at 20% or at the applicable higher rate.
   

Types of Payments Covered Under Form 27Q

Form 27Q covers all non-salary payments made to NRIs or foreign entities, including:

• Interest payments on loans, deposits, and securities.
• Dividend payments on shares.
• Royalty payments for intellectual property rights.
• Technical service fees paid to foreign consultants.
• Commission and brokerage fees paid to NRIs.
• Capital gains from property or investments.
• Lottery winnings and game show prizes received by NRIs.
• Payments to sportspersons, artists, and entertainers.

By ensuring tax is deducted on these transactions, the government prevents tax evasion and ensures that NRIs contribute their fair share of taxes on income earned in India.

How to File Form 27Q?

Filing Form 27Q is a structured process that requires attention to detail. Here is a step-by-step guide to submitting the return correctly:

Step 1: Deduct TDS Before Payment

Before making payments to an NRI, the deductor must calculate and deduct TDS at the applicable rate. The deducted amount must be deposited with the Income Tax Department using a challan (Challan No. ITNS 281).

Step 2: Download the TDS Return Preparation Utility (RPU)

Visit the official website of Protean eGov Technologies Limited (formerly NSDL).
Download the e-TDS Return Preparation Utility (RPU) under the ‘e-TDS/e-TCS’ section.
Use this tool to prepare Form 27Q in the correct format.

Step 3: Validate the Form Using the File Validation Utility (FVU)

Use the File Validation Utility (FVU) to verify the correctness of the Form 27Q return.
Rectify any errors or missing details before submission.

Step 4: Submit Form 27Q to the TIN-Facilitation Centre

Once validated, submit Form 27Q along with Form 27A (a summary report) to a TIN-Facilitation Centre (TIN-FC).
Alternatively, Form 27Q can be filed online via the TRACES portal.

Step 5: Issue TDS Certificate (Form 16A)

The deductor must provide Form 16A (TDS certificate) to the payee within 15 days of filing Form 27Q.
This certificate serves as proof of TDS deduction for the non-resident.
 

Details Required to be Filled in Form 27Q

Form 27Q captures both deductor details (the person/entity deducting TDS) and deductee details (the non-resident receiving the payment), along with transaction-level TDS information. Key details typically required include:

1) Deductor Details

• TAN (Tax Deduction and Collection Account Number)
• PAN of deductor (where applicable)
• Name and address of deductor
• Contact details (email/phone)
• Responsible person details (name, designation, contact)

2) Deductee (Payee) Details

• Name of the non-resident / foreign company
• Address and country of residence
• PAN (if available)
• Tax Identification Number (TIN) / foreign tax ID (where relevant)
• Status of deductee (non-resident / foreign company)

3) Challan and Payment Details

• BSR code of the bank branch
• Date of deposit of TDS
• Challan serial number
• Total tax deposited for the quarter (as applicable)

4) Transaction-Level TDS Information

• For each payment reported, you generally need:
• Date of payment/credit
• Amount paid/credited
• Nature of remittance (type of payment)
• Relevant section under which TDS is deducted (e.g., 195)
• TDS rate applied
• Tax amount deducted and deposited
• Any surcharge/cess included (if applicable)

5) DTAA / Treaty Benefit Details (if claimed)

• If you’re applying DTAA rates, you may need to maintain/support reporting with:
• Country of residence
• TRC (Tax Residency Certificate) availability
• Applicable treaty article reference (in working/supporting)
• Form 10F / declarations (as applicable)

Since Form 27Q relates to non-resident payments, accuracy matters - especially in section selection, rate application, and deductee identification details. Even small errors can lead to mismatches, notices, or delays in processing.

Due Dates for Filing Form 27Q

Form 27Q must be filed every quarter as per the following deadlines:

Missing these deadlines can result in penalties, making timely filing essential.

Consequences of Late Filing or Non-Compliance

Failing to file Form 27Q on time attracts penalties under Sections 234E and 271H of the Income Tax Act:

Late Filing Penalty (Section 234E)

• ₹200 per day of delay until the return is filed.
• Maximum penalty up to the total TDS deducted.

Non-Filing or Incorrect Filing Penalty (Section 271H)

• Penalty between ₹10,000 and ₹1,00,000 for failure to submit the return.
• Applies when incorrect details are furnished.

To avoid unnecessary penalties, ensure that TDS is deducted, deposited, and Form 27Q is filed before the due date.

Conclusion

Form 27Q is an essential compliance document for individuals and businesses making non-salary payments to NRIs or foreign entities. By deducting TDS at source and filing the return on time, taxpayers ensure smooth financial transactions while staying compliant with Indian tax laws.

Whether you are a business owner, property buyer, or financial institution, understanding Form 27Q is vital for managing cross-border payments efficiently. Timely filing helps you avoid penalties and ensures proper tax reporting—a win-win for both taxpayers and the government.