Withholding Tax (TDS on Payments to Non-Residents)

What Is Withholding Tax?

Withholding tax is tax deducted by a payer from a payment to a recipient and deposited with the tax authorities when the payment is subject to tax deduction. In India, withholding tax on specified payments to non-residents is commonly referred to as Tax Deducted at Source (TDS).

It helps collect tax at the time certain payments are made or credited, rather than waiting until the recipient files a tax return.

When Does Withholding Tax Apply to Non-Residents?

Under the Income-tax Act, 1961, Section 195 governed TDS on specified payments to non-residents and foreign companies, other than income chargeable under the head Salaries.

Depending on the facts and applicable law, payments may include:

• Interest income
• Royalties
• Fees for technical services
• Rent
• Dividends
• Capital gains
• Other sums chargeable to tax in India

A payment to a non-resident does not automatically attract TDS simply because the recipient lives outside India. The payer must determine whether the payment is taxable in India and whether withholding is required under the applicable provisions.

Example of Withholding Tax

Suppose an Indian company pays royalties to a U.S.-based company for the use of intellectual property.

Before making the payment, the Indian company must determine:

• Whether the royalty is taxable in India.
• Whether withholding tax applies.
• Which domestic tax rate or tax treaty provision is relevant.
• Whether the required deduction and reporting procedures have been completed.

How Does a DTAA Affect Withholding Tax?

The applicable withholding rate depends on the nature of the income, domestic tax law, and any available benefit under a Double Taxation Avoidance Agreement (DTAA).

A tax treaty may provide a reduced rate or other relief, subject to the relevant treaty conditions. Supporting documents may include a Tax Residency Certificate (TRC) and the prescribed declaration of residential details (Form 10F under the earlier framework, and Form 41 under the Income-tax Act, 2025).

Treaty benefits should not be assumed automatically; eligibility and documentation must be assessed for the specific payment.

Which Forms May Be Required?

Depending on the applicable law and transaction, the payer may need to complete remittance-related information and certification requirements.

• Form 145: The remitter’s declaration for certain payments to non-residents, for remittances on or after 1 April 2026 (earlier Form 15CA).
• Form 146: The Chartered Accountant’s certificate where required, for remittances on or after 1 April 2026 (earlier Form 15CB).

For remittances up to 31 March 2026, Forms 15CA and 15CB under the earlier framework applied.

These forms support remittance compliance; they do not, by themselves, determine whether withholding tax is legally payable.

Important Update: Income-tax Act, 2025

The Income-tax Act, 2025 came into effect on 1 April 2026. For transactions on or after that date, the applicable provisions and prescribed forms under the new Act should be checked instead of automatically relying on the earlier framework.

For payments or credits on or after that date, the corresponding provision for payments to non-residents is Section 393(2) (Table Serial No. 17) of the Income-tax Act, 2025, and the remittance forms are Form 145 (earlier Form 15CA) and Form 146 (earlier Form 15CB). Section 195 and Forms 15CA and 15CB continue to be relevant only for transactions governed by the Income-tax Act, 1961.

Why Is Withholding Tax Important for NRIs?

Withholding tax is relevant to NRIs as recipients, and to foreign companies and Indian businesses making cross-border payments. For NRIs, it affects how much tax is deducted before a payment such as rent, interest or sale proceeds reaches them, and whether a treaty benefit can be claimed. Understanding the rules can also help payers:

• Determine whether a payment is subject to Indian tax deduction.
• Assess whether a DTAA benefit may be available.
• Complete applicable deduction, reporting, and remittance procedures.
• Reduce the risk of incorrect withholding, compliance delays, and potential tax disputes.

Related reading: Explore SaveTaxs’s guides on Form 13 for Lower or Nil TDS and TDS vs TCS for related tax concepts.