Follow us on:
The 2-Minute Summary
Every payment made to a non-resident or foreign company that is chargeable to tax in India attracts TDS. There is no minimum threshold. Even Re. 1 of taxable income paid to a non-resident triggers the TDS obligation.
The rate depends on the nature of the income and whether a Double Taxation Avoidance Agreement (DTAA) applies. If a DTAA is in force between India and the non-resident’s country, and the DTAA rate is lower than the domestic rate, the lower DTAA rate applies provided the non-resident furnishes a valid Tax Residency Certificate.
Example: An Indian company pays USD 50,000 as royalty to a US software company. This is chargeable to tax in India. The domestic rate under the Act is 20%. Under the India-USA DTAA, the royalty rate may be 10-15%. If the US company provides a valid Tax Residency Certificate, TDS applies at the applicable DTAA rate.
Example: A West Indian cricketer receives Rs. 10 lakh for playing in an exhibition match in India. The Indian organiser deducts TDS at 20% under Section 393(2) Sl. No. 1 (non-resident sportsman) = Rs. 2 lakh.
Under Income Tax Act 1961: Section 195 of the Income Tax Act 1961. Now Section 393(2) Sl. No. 17 (and specific entries Sl. 1-16) of the Income Tax Act 2025.
The Non-Resident TDS Rate Table: Section 393(2)
Section 393(2) contains a separate table for payments to non-residents. All entries are reproduced here from the Act:
| Sl. No. | Nature of Payment | Payee | Rate |
| 1 | Income from participation in India under Section 211 (sports/entertainment) | Non-resident sportsman, entertainer, or sports association | 20% |
| 2 | Interest on foreign currency loan / long-term infrastructure bond (issued before 1 July 2023) | Non-resident or foreign company | 5% |
| 3 | Interest on rupee denominated bond (issued before 1 July 2023) | Non-resident or foreign company | 5% |
| 4(a) | Interest on long-term bond / rupee bond listed on IFSC exchange (issued April 2020 to June 2023) | Non-resident or foreign company | 4% |
| 4(b) | Interest on long-term bond / rupee bond listed on IFSC exchange (issued on or after 1 July 2023) | Non-resident or foreign company | 9% |
| 5 | Interest paid by Infrastructure Debt Fund (Schedule VII Sl. No. 46) | Non-resident or foreign company | 5% |
| 6(a) | Distributed income under Section 223 of the nature referred to in Schedule V Sl. No. 3 B(a) | Non-resident unit holder or foreign company | 5% |
| 6(b) | Distributed income under Section 223 of the nature referred to in Schedule V Sl. No. 3 B(b) | Non-resident unit holder or foreign company | 10% |
| 7 | Distributed income under Section 223 of the nature referred to in Schedule V Sl. No. 4 | Non-resident unit holder or foreign company | Rates in force |
| 8 | Income from units of investment fund specified in Section 224 (other than exempt portion under Schedule V Sl. No. 2) | Non-resident or foreign company | Rates in force |
| 9 | Income from investment in securitisation trust specified in Section 221 | Non-resident investor or foreign company | Rates in force |
| 10 | Income in respect of units of a Mutual Fund (Schedule VII Sl. No. 20 or 21) or units from specified company | Non-resident or foreign company | 20% or DTAA rate if lower (see Note 2) |
| 11 | Income from units referred to in Section 208 (Offshore Fund) | Offshore fund | 10% |
| 12 | LTCG from transfer of units referred to in Section 208 | Offshore fund | 12.5% |
| 13 | Interest or dividends on bonds or Global Depository Receipts referred to in Section 209 | Non-resident | 10% |
| 14 | LTCG from transfer of bonds or Global Depository Receipts referred to in Section 209 | Non-resident | 12.5% |
| 15 | Income from securities referred to in Section 210(1) Sl. No. 1 | Foreign Institutional Investor | 20% or DTAA rate if lower (see Note 2) |
| 16 | Income from securities referred to in Section 210(1) Sl. No. 1 | Specified fund (Schedule VI Note 1(g)) | 10% |
| 17 | Any interest (other than Sl. 2-5) or any other sum chargeable under the Act, not being income chargeable under Salaries | Any non-resident or foreign company | Rates in force (30% for individuals; 35% for foreign companies; or applicable DTAA rate) |
Note: For Sl. No. 10 and 15 (Note 2 to the table): TDS is at 20%, or at the DTAA rate if lower, provided the payee has furnished a certificate referred to in Section 159(8) confirming the DTAA applies to them.
Note: For Sl. No. 17 (Note 3(b) to the table): the obligation to deduct TDS applies to all persons, whether resident or non-resident, regardless of whether the non-resident payee has any presence in India.
Who Must Deduct: Any Person, Anywhere
Note 3(b) to Section 393(2) Sl. No. 17 contains a far-reaching rule. The obligation to deduct TDS applies to all persons, resident or non-resident, making payments to a non-resident that are chargeable to tax in India. The obligation follows the taxability of the income in India, not the location of the payer.
This means even a foreign company paying another foreign company for income that has an Indian source must deduct TDS if that income is chargeable to tax in India.
DTAA: When a Lower Rate Applies
India has DTAAs with over 90 countries. Where a DTAA applies and prescribes a lower rate for a type of income (royalty, interest, dividends, fees for technical services), the lower DTAA rate applies instead of the domestic Act rate.
To claim the DTAA rate, the non-resident must furnish:
- A valid Tax Residency Certificate (TRC) from the tax authority of their country confirming they are a resident of that country.
- Form 10F (self-declaration) with additional details, if required under the Rules.
Without a TRC, TDS must be deducted at the domestic Act rate, not the DTAA rate.
Example: A German company receives Rs. 20 lakh as fees for technical services from an Indian company. The domestic rate under the Act is 20%. If the India-Germany DTAA provides for a lower rate and the German company provides a valid TRC, TDS is deducted at the lower DTAA rate. Without TRC, TDS = 20%.
Form 15CA and Form 15CB
For every remittance to a non-resident, the payer must file Form 15CA online before making the remittance. For taxable remittances exceeding Rs. 5 lakh in a Tax Year from a single payee, the payer must also obtain Form 15CB, a certificate from a Chartered Accountant confirming the nature, taxability, and applicable TDS rate.
| Remittance Type | Form 15CA Required | Form 15CB Required |
| Fully exempt remittance (as per specified list in Rules) | No | No |
| Taxable remittance up to Rs. 5 lakh in the year | Yes (Part A or B) | No |
| Taxable remittance above Rs. 5 lakh | Yes (Part C) | Yes (CA Certificate) |
Application for Determination: Section 395(2)
Where a payer believes that not the whole of the sum payable to a non-resident is chargeable to tax in India, they can apply to the Assessing Officer under Section 395(2) for determination of the taxable proportion. Once determined, TDS is deducted only on that proportion.
Example: An Indian company pays USD 1,00,000 to a Mauritius company for sale of shares in an Indian subsidiary. Part of the amount represents return of capital and part is gain. The Indian company applies under Section 395(2). The AO determines the taxable gain portion. TDS is deducted only on that determined amount.
Practical Compliance Checklist
- Before making any foreign remittance: determine whether the income is chargeable to tax in India. If taxable, deduct TDS at the applicable rate (Act rate or DTAA rate, whichever applies).
- Always check whether a DTAA applies. Obtain a valid TRC from the payee before applying the DTAA rate.
- File Form 15CA before every foreign remittance. Obtain Form 15CB from a CA for taxable remittances above Rs. 5 lakh.
- For remittances where only part of the payment is taxable: apply under Section 395(2) to the Assessing Officer for determination of the taxable proportion.
- For payments to non-resident sportsmen or entertainers participating in India: deduct at 20% under Sl. No. 1, from the first rupee, regardless of amount.
Non-resident TDS is one of the most complex areas of Indian tax law. The interplay of domestic rates, DTAA provisions, beneficial ownership rules, and withholding tax treaties requires careful analysis for every transaction. Non-deduction or under-deduction results in the payer being treated as an assessee in default, with 30% of the payment disallowed as a business expense. Always get expert advice before the remittance leaves India.
