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 195 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 Section 201, and disallowance of the expenditure under Section 40(a)(i).

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

Typical rates as of 2026 are 20% plus surcharge and cess under Section 115A for dividend, royalty and fees for technical services, and 20% for interest with a concessional 5% available under Section 194LC. 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 10F 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 Sections 90(4) and 90(5)
• Form 10F — 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 Section 206AA may push the rate to 20%

How does the Form 15CA / 15CB process work?

Form 15CB is a Chartered Accountant's certificate stating the nature of the remittance, its taxability, the treaty article relied on and the rate applied. Form 15CA is the remitter's online declaration under Rule 37BB, filed in Part A, B, C or D depending on the amount, taxability and whether a Section 195 or Section 197 order exists. The AD bank will not release funds without them.

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 195.

2. 2

   Test chargeability in India

   Apply Sections 5 and 9 for source, then the DTAA to check whether India retains taxing rights and at what rate under Section 90(2).

3. 3

   Collect the treaty file

   Tax Residency Certificate, Form 10F, no-PE declaration, PAN and the underlying contract, all dated before the remittance.

4. 4

   Consider Section 197 or 195(2)

   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 15CB and file Form 15CA

   A Chartered Accountant signs Form 15CB; the remitter files the correct Part of Form 15CA under Rule 37BB 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.