1. When Is Foreign Income Taxable in India?
Under ITA 2025, the taxability of income in India depends on the taxpayer residential status and the source of income. Residents are taxed on global income; non-residents are taxed only on India-source income. Section 9 of ITA 2025 deems certain income to accrue or arise in India — making it taxable even if received abroad.
2. Incomes Deemed to Accrue in India (Section 9)
- Business connection: Income from business partly/wholly carried on in India
- Salary: Income for services rendered in India
- Dividend: Paid by Indian company — always deemed India source
- Interest: From Indian companies, Indian government, or residents (with exceptions)
- Royalty/FTS: For rights/services used or services utilized in India — regardless of where payment is made
- Capital gains: On transfer of capital assets situated in India
3. Permanent Establishment (PE)
A non-resident company has a Permanent Establishment (PE) in India if:
- It has a fixed place of business (office, factory, branch) in India
- It has a dependent agent acting on its behalf in India
- It has a service PE (employees providing services in India for 183+ days)
- Once a PE exists, the non-resident is taxed on profits attributable to the PE at 40% (foreign company rate)
- This is a critical determination for multinationals with Indian operations
4. TDS on Cross-Border Payments: Form 15CA/15CB
When any resident makes a payment to a non-resident, TDS compliance and FEMA remittance compliance must be met:
- Form 15CA: Online declaration filed by the payer on the IT Portal — required for most payments above USD 25,000 or on specified categories regardless of amount
- Form 15CB: Certificate from a Chartered Accountant confirming correct TDS deduction — required for specified commercial payments above threshold
- Banks will not process SWIFT/foreign remittances without Forms 15CA/15CB where applicable
5. Key TDS Rates for Non-Resident Payments
| Payment Type | TDS Rate (Domestic Law) | DTAA may reduce to |
|---|---|---|
| Business income (non-PE) | Not taxable in India | N/A |
| Technical/professional fees (FTS) | 20% | 10-15% (DTAA) |
| Royalty | 20% | 10-15% (DTAA) |
| Interest | 20% | 10-15% (DTAA) |
| Dividends | 20% | 15% (DTAA) |
| Capital gains on Indian property | 20% LTCG / 30% STCG | May vary by DTAA |
6. DTAA: Reduced Rates and Exemptions
India has DTAAs with 96+ countries. Non-residents from treaty countries can claim lower TDS rates. To claim DTAA benefits, the non-resident must provide:
- Tax Residency Certificate (TRC) from their country
- Form 10F filed on Indian IT Portal
- Indian PAN (without PAN, TDS at 20% regardless of DTAA)
7. Equalisation Levy: Digital Services
The 6% Equalisation Levy still applies on payments for online advertising services to non-resident companies (Google Ads, Meta Ads, LinkedIn Ads etc.) by Indian businesses — subject to the Rs 1,00,000 annual threshold. This is an additional cost on top of GST considerations for digital advertising.
8. Why TaxClue
Cross-border transactions require simultaneous analysis of India domestic tax, DTAA provisions, FEMA regulations, and sometimes US FATCA or other country regulations. TaxClue provides integrated international tax advisory and Form 15CA/15CB services. Contact us under ITA 2025.