When paying a non-resident a sum taxable in India, deduct TDS under Section 195 at the more beneficial of the Income-tax Act rate or the applicable DTAA rate. The treaty rate needs a Tax Residency Certificate and Form 10F; most remittances require a CA's Form 15CB and the remitter's Form 15CA before payment.
The decision: Act rate or treaty rate
For each foreign payment, first decide if it is chargeable to tax in India. If yes, apply the lower of the Act rate or the relevant DTAA article rate. To use the treaty rate, obtain from the payee a Tax Residency Certificate (TRC), Form 10F, and (where relevant) a no-PE declaration. Without PAN, Section 206AA can force a higher rate (subject to Rule 37BC relief for certain payments).
The 15CA/15CB drill
- Determine taxability and the rate (Act vs treaty).
- Obtain Form 15CB — a CA's certificate on taxability and rate — for most taxable remittances above the threshold.
- File Form 15CA online (Part A/B/C/D as applicable).
- Remit through the AD bank with the forms.
Payments in the Rule 37BB specified list are exempt from 15CA/15CB.
Grossing up
If the contract is net of tax (the payee is to receive a fixed amount), the income is grossed up under Section 195A so the payer bears the TDS. For example, a net royalty of Rs.90 at a 10% treaty rate grosses up to Rs.100, with Rs.10 TDS.
Practical points
- Apply Section 195(2)/197 to avoid over-withholding where only part is taxable.
- Report in Form 27Q; issue Form 16A.
- Watch overlaps with GST on import of services and equalisation levy.
- See the cross-border concepts in the Section 195 / PE guide.
Key takeaways
- 195: deduct at the more beneficial of the Act or DTAA rate.
- Treaty rate needs TRC + Form 10F (+ no-PE declaration).
- Form 15CB (CA) + 15CA (declaration) before remittance.
- Net-of-tax contracts are grossed up under Section 195A.