Withholding Tax (TDS) on Payments to Foreign Companies

Last reviewed: July 2026 · Reviewed by CA Regi Tom Antony, Regi Tom Antony & Associates.

What is withholding tax on a foreign remittance from India?

Withholding tax on a foreign remittance is the tax an Indian payer must deduct at source under section 393 before paying any sum to a non-resident that is chargeable to tax in India. It applies to dividends, royalties, fees for technical services, interest and any other taxable income, and is deposited to the credit of the central government in the payee's name.

The obligation sits on the payer, not the payee. Failure to deduct attracts interest and assessee-in-default consequences under the Income-tax Act, 2025 (formerly section 201 of the 1961 Act), and disallowance of the expenditure under the Income-tax Act, 2025 (formerly section 40(a)(i) of the 1961 Act).

What are the typical TDS rates on payments to foreign companies?

Typical rates as of 2026 are 20% plus surcharge and cess under the Income-tax Act, 2025 (formerly section 115A of the 1961 Act) for dividend, royalty and fees for technical services, and 20% for interest with a concessional 5% available under the Income-tax Act, 2025 (formerly section 194LC of the 1961 Act). Most treaties reduce these to between 5% and 15%. Business income without a permanent establishment in India is generally not taxable at all.

Illustrative only, as of 2026. Treaty rates are DTAA-specific and depend on the payee's country of residence, the exact article invoked and beneficial-ownership conditions. Always obtain a case-specific opinion before remitting.

What documents are needed to claim a DTAA rate?

To apply a treaty rate instead of the Act rate, the Indian payer must hold, before remittance, a Tax Residency Certificate issued by the payee's home tax authority, Form 41 filed electronically on the Indian income-tax portal, a declaration that the payee has no permanent establishment or business connection in India, and evidence of beneficial ownership of the income.

• Tax Residency Certificate — mandatory under section 159 of the Income-tax Act, 2025 (formerly sections 90(4) and 90(5) of the 1961 Act)
• Form 41 — filed electronically by the non-resident payee
• No-permanent-establishment declaration on the payee's letterhead
• Beneficial-ownership confirmation, relevant for treaty dividend and interest articles
• Executed agreement or invoice establishing the nature of the income
• Indian PAN of the payee, failing which the Income-tax Act, 2025 (formerly section 206AA of the 1961 Act) may push the rate to 20%

How does the Form 145 and Form 146 process work?

Form 146 is a Chartered Accountant's certificate stating the nature of the remittance, its taxability, the treaty article relied on and the rate applied. Form 145 is the remitter's online declaration under the remittance provisions of the Income-tax Act, 2025 (formerly rule 37BB of the Income-tax Rules, 1962), filed in Part A, B, C or D depending on the amount, taxability and whether an applicable tax order or certificate exists under the Income-tax Act, 2025 (formerly sections 195 and 197 of the 1961 Act). The AD bank will not release funds without them.

From tax year 2026-27, Forms 145 and 146 replace Forms 15CA and 15CB and withholding moves to section 393 of the Income-tax Act, 2025 — our cross-border tax and FEMA guide maps the old and new provisions.

How do we run a remittance certification?

1. 1

   Characterise the payment

   Decide whether the sum is royalty, fees for technical services, interest, dividend or non-taxable business income — the single most contested question under section 393.

2. 2

   Test chargeability in India

   Apply the Income-tax Act, 2025 (formerly sections 5 and 9 of the 1961 Act) for source, then the DTAA to check whether India retains taxing rights and at what rate under section 159.

3. 3

   Collect the treaty file

   Tax Residency Certificate, Form 41, no-PE declaration, PAN and the underlying contract, all dated before the remittance.

4. 4

   Consider lower or nil deduction under the Income-tax Act, 2025 (formerly sections 197 or 195(2) of the 1961 Act)

   Where the Act rate over-taxes the payee, apply to the Assessing Officer for a lower or nil deduction certificate before the payment cycle begins.

5. 5

   Issue Form 146 and file Form 145

   A Chartered Accountant signs Form 146; the remitter files the correct Part of Form 145 under the remittance provisions of the Income-tax Act, 2025 (formerly rule 37BB of the Income-tax Rules, 1962) and hands both to the AD bank.

6. 6

   Deposit, report and reconcile

   Deposit the TDS by the seventh of the following month, report it in the quarterly Form 27Q and issue Form 16A to the payee.

Where this fits in your India structure

Withholding tax is the toll gate on every route in our profit repatriation guide. It also shapes how much intra-group charging is worth doing in a wholly owned subsidiary, and it is one of the first controls we install during post-entry support. Individual non-residents remitting rent, interest or sale proceeds should read NRI taxation and NRI investment & FEMA compliance. Ongoing monthly TDS discipline is typically run under a virtual CFO engagement.

Reviewed by CA Regi Tom Antony, Regi Tom Antony & Associates. Last reviewed: July 2026. Rates and thresholds stated are as of 2026 and are general guidance only.