Legal Reference
Section 9 (income deemed to accrue in India), Section 195 (TDS on non-resident payments), Section 213 (DTAA), Section 90 (permanent establishment), Form 15CA/15CB, ITA 2025
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.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
When is a foreign company's income taxable in India?
A foreign company income is taxable in India if: (1) It has a Permanent Establishment (PE) in India — fixed office, factory, dependent agent, or service PE. PE income is taxed at 40%. (2) It derives income deemed to accrue in India under Section 9 — dividends from Indian companies, royalties and FTS for rights/services used in India, capital gains on Indian assets, and interest from Indian entities. Non-PE business income from purely foreign transactions is not taxable in India.
What is a Permanent Establishment?
A non-resident has a Permanent Establishment (PE) in India when it has a fixed place of business in India (office, branch, factory, workshop), a dependent agent (Indian person acting exclusively or substantially on behalf of the non-resident), or provides services through employees in India for 183+ days in a 12-month period. Once a PE exists, profits attributable to the PE are taxable in India at 40% (foreign company rate). Most tax treaties have detailed PE articles.
When are Form 15CA and 15CB required?
Form 15CA (payer declaration, filed online) is required for most foreign remittances above USD 25,000 per transaction or for specified categories regardless of amount. Form 15CB (CA certificate confirming TDS computation) is needed for specified commercial payments above threshold. Both are filed on the IT Portal before the bank processes the SWIFT/foreign remittance. Banks will not remit foreign payments without these forms where applicable.
What is the TDS rate on royalties paid to non-residents?
Under domestic law (ITA 2025), TDS on royalties paid to non-resident companies is 20% (Section 396 equivalent). Under most DTAAs, the reduced rate is 10-15%. To get the DTAA rate, the non-resident must provide a Tax Residency Certificate (TRC), Form 10F, and Indian PAN. If no PAN is furnished, TDS is 20% (or 20% if higher than applicable rate). The 20% domestic rate minus DTAA benefit is commonly negotiated in software and IP licensing agreements.
What is the Equalisation Levy on digital advertising?
The 6% Equalisation Levy on online advertising services provided by non-resident companies to Indian businesses remains in force under ITA 2025. Threshold: Rs 1,00,000 per year from a single non-resident advertiser. The Indian business deducts 6% from the payment (e.g., deducts from Google Ads budget), deposits it monthly, and files an annual Form 1 by 30 June. The non-resident (Google, Meta, LinkedIn) receives only 94% — the 6% is the non-resident Indian income tax proxy.
