—International Taxation & Transfer Pricing
Withholding Tax on Non-Resident Payments
Determination of taxability, applicable rates and treaty relief for payments to non-residents; TDS compliance.
Handled by a practising Chartered Accountant or Company Secretary.
Scope of work
Determination of taxability, applicable rates and treaty relief for payments to non-residents; TDS compliance.
Key deliverables
- Withholding analysis
- compliance filings
Governing law
Income-tax Act (1961 / 2025, as applicable to the period); DTAAs
Frequency
Monthly / As required
REGISTRATION ONLY
Withholding Tax on Non-Resident Payments
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- Withholding analysis
- compliance filings
REGISTRATION + COMPLIANCE CARE
Withholding Tax on Non-Resident Payments + Compliance Care
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+ ₹9,599/yr for year-one ROC compliance
- Withholding analysis
- compliance filings
- Financial statements in Schedule III format
- Board report and AGM notice
- Filed AOC-4 with SRN
- Filed MGT-7 / MGT-7A with SRN
- Board and AGM minutes
500+
Companies incorporated
100%
CA/CS-signed filings
4.8/5
Founder rating
—A closer look
Understanding withholding tax on non-resident payments
Everything below is written for Indian businesses paying foreign parties — when tax must be withheld, at what rate, and how the 15CA/15CB process works.
What is withholding tax on non-resident payments?
When an Indian business pays a non-resident — a foreign vendor, consultant, software provider, lender, or group company — it must withhold tax on the payment if the income is chargeable to tax in India. The payer deposits the tax, files returns, and issues certificates, much like TDS on domestic payments, but with higher stakes.
Before the money leaves India, the payer also files Form 15CA, often backed by a Chartered Accountant's certificate in Form 15CB. For payments from 1 April 2026, these rules continue under the Income-tax Act, 2025.
The key terms
A few concepts decide the withholding:
- Chargeable to tax
- Withholding applies only if the payment is income taxable in India, under domestic law or the treaty, whichever is more beneficial.
- Character of the payment
- Royalty, fees for technical services, interest, dividends, business profits, or capital gains — each is treated differently.
- Treaty rates
- Where the recipient provides a TRC and Form 10F, the lower treaty rate can apply.
- Grossing up
- If the payer bears the tax so the recipient gets the full amount, the payment is grossed up and tax computed on the higher figure.
- No PAN
- Without the recipient's PAN, a higher rate applies unless specified alternative documents are provided.
- Form 15CA
- An online declaration of the remittance, filed before payment.
- Form 15CB
- A CA's certificate on the nature of the payment, its taxability, and the withholding rate, required for many taxable remittances above specified limits.
A simple example
A Hyderabad startup pays an Irish company for cloud software licences and a US company for marketing analytics. For the software, the question is whether the payment is a royalty — a long-debated issue, now settled in many cases by courts in favour of treating standard software licences as not being royalties. For the analytics service, it checks whether the service is a technical fee under the India–US treaty's 'make available' clause. A CA documents each position in Form 15CB, the startup files Form 15CA, and remits — withholding only where the analysis requires it.
Why it matters
Getting withholding wrong falls on the payer:
- Payer is liable
- If tax isn't withheld when it should be, the payer is liable for the tax, with interest.
- Expense disallowed
- Payments to non-residents without required withholding can be fully disallowed as a deduction.
- Banks need 15CA/15CB
- Banks won't process many foreign remittances without them.
- Treaty benefits
- Correct treaty application can reduce or eliminate withholding.
- Grossing up costs
- Agreeing to bear the tax raises the cost more than expected.
- Quarterly returns
- Tax withheld on non-resident payments is reported in its own quarterly return.
- Due diligence
- Missing withholding on foreign payments is a common finding in investor reviews.
Who is this for?
- Businesses paying foreign software, SaaS, or cloud providers
- Companies paying foreign consultants, agencies, or freelancers
- Indian subsidiaries paying royalties, fees, or dividends to parents
- Businesses repaying or paying interest on foreign loans
- Buyers of property or shares from NRIs
Payments for the purchase of goods imported into India are generally not subject to withholding, but services bundled with them may be.
How common payments are treated
A simplified view — the answer always depends on the facts and the treaty:
| Aspect | Royalty | Technical services | Interest | Business profits |
|---|---|---|---|---|
| Taxable in India? | Often, under domestic law and treaties | Often, subject to treaty definitions | Often, at domestic or treaty rates | Only if there's a business connection or permanent establishment |
| Treaty effect | Capped rate; definitions vary | Capped rate; some treaties narrow the scope | Capped rate | Taxable only with a PE |
| Key question | Is it really a right to use IP? | Is technical knowledge made available? | Is the lender the beneficial owner? | Does the payee have a PE in India? |
What we'll need from you
- Contract and invoice
- The agreement and invoice for the payment.
- Recipient documents
- TRC, Form 10F, PE declaration, and PAN or alternative documents.
- Payment details
- Amount, currency, and date of remittance.
- Who bears the tax
- Whether the contract requires the payer to gross up.
- Bank details
- For the remittance and Form 15CA.
- TAN
- The payer's TAN for depositing tax and filing returns.
Fees depend on the number and complexity of remittances; Form 15CB certificates are quoted per certificate or on retainer.
How we handle foreign payments
For each payment:
- 1
Analyse the payment
We characterise the payment and determine taxability under domestic law and the treaty.
- 2
Collect documents
TRC, Form 10F, and declarations are obtained from the recipient.
- 3
Compute withholding
The rate is applied, with grossing up if the payer bears the tax.
- 4
Certify in 15CB
Where required, a CA issues Form 15CB.
- 5
File 15CA and remit
Form 15CA is filed and the payment remitted through the bank.
- 6
Deposit and report
Tax is deposited, the quarterly return filed, and the certificate issued.
Staying compliant
Ongoing essentials:
- Deposit on time
- Deposit tax withheld by the due date.
- File quarterly returns
- File the non-resident TDS return each quarter.
- Issue certificates
- Issue TDS certificates to recipients.
- Renew documents
- Collect current TRCs and Form 10F each year.
- Review recurring payments
- Revisit the analysis when contracts change.
- Apply the new Act
- For payments from April 2026, apply the Income-tax Act, 2025's provisions and forms.
Benefits and responsibilities
Benefits
- Withholding right the first time
- Treaty benefits applied where available
- Forms 15CA and 15CB handled
- Expenses protected from disallowance
- No surprises in due diligence
Responsibilities
- Check withholding before paying foreign parties
- Collect recipient documents
- Agree who bears the tax in contracts
- Deposit tax and file returns on time
- Keep analyses and certificates on file
- Review recurring arrangements
—FAQ
Questions businesses actually ask us
Often not, following court rulings that standard software licences aren't royalties, but it depends on the terms, the treaty, and whether any service element is involved. It should be analysed, and Form 15CA/15CB handled as required.