When TDS applies
- Under section 393(2) of the Income-tax Act, 2025 (formerly section 195), anyone paying a non-resident or foreign company interest or any other sum chargeable to tax in India (other than salary) must deduct tax.
- Common cases: royalties and software licences, fees for technical services, interest on foreign loans, dividends, and payments for Indian property bought from NRIs.
- Payments that aren’t taxable in India — for example, many business payments to a foreign company with no Indian permanent establishment — don’t need TDS, but you still document why.
- Deductors file a quarterly TDS return in Form 144 (formerly 27Q).
Which rate
You apply the lower of the rate in the Act and the rate in India’s tax treaty with the payee’s country — often 10% or 15% for royalties and technical fees. See treaty rates for the US, UAE, Europe and the Gulf.
Documents from the payee
- A tax residency certificate from their country.
- Form 41 (formerly 10F), filed online.
- Their Indian PAN — or, if they don’t have one, the prescribed details (name, email, address, tax ID and residency certificate); otherwise a higher rate applies.
- A no-permanent-establishment declaration where relevant.
Forms 145 and 146 (formerly 15CA and 15CB)
- Part A of Form 145 for taxable remittances up to ₹5 lakh in the year.
- Part B above ₹5 lakh where you have a lower/nil deduction certificate from the tax officer.
- Part C above ₹5 lakh with a chartered accountant’s certificate in Form 146.
- Part D for payments not chargeable to tax; a specified list of purposes needs no form at all.
If you bear the tax
If your contract says the vendor receives the full amount “net of taxes”, the tax is grossed up — you deduct on a higher base so the vendor still gets the agreed amount. Check contracts before you sign them.
If you don’t deduct
- The entire expense is disallowed in computing your business income until the tax is deducted and paid.
- Interest and penalties can apply, and the bank may refuse the remittance without the forms.
We issue Form 146 certificates and review cross-border contracts — see FEMA & RBI and tax advisory.
Are you the foreign side of the payment? Read Form 41, TRC and the no-PE declaration.
Frequently asked questions
What replaced section 195 in the Income-tax Act 2025?
Can a treaty rate be applied when paying a foreign vendor?
When is a CA certificate (Form 146) needed for a foreign remittance?
What happens if TDS is not deducted on a payment to a non-resident?
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.