TDS on Payments explained: this guide covers what TDS on Payments means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Key Highlights
- TDS on non-resident payments: Section 396, ITA 2025 (old Section 195)
- Applicable on any payment that is chargeable to tax in India
- Can apply DTAA rates (lower than domestic) with TRC + Form 10F
- Form 15CA (online declaration) + Form 15CB (CA certificate) mandatory for most remittances
- Nil/lower TDS certificate available under Section 398
- Non-deduction makes payer "assessee in default" — liable for full tax + interest + penalty
1. Payments Requiring TDS Under Section 396
| Payment | Domestic Rate | Common DTAA Rate |
|---|---|---|
| Royalty / Fees for Technical Services | 10-20% | 10-15% (varies by country) |
| Interest (general) | 20% | 10-15% (varies) |
| Dividend | 20% | 10-15% (varies) |
| NRI rental income | 30% | Generally 30% domestic rate applies |
| Capital gains on property (LTCG) | 20% | DTAA may exempt or reduce |
2. DTAA Override
If India has a DTAA with the non-resident country, the payer can use the lower DTAA withholding rate. Requirements: (a) Tax Residency Certificate (TRC) from non-resident country; (b) Form 10F (if TRC is incomplete). For example, under India-Netherlands DTAA, royalties may be taxed at 10% vs 20% domestic rate.
3. Form 15CA and 15CB
Form 15CA: Online declaration by remitter on IT Portal before remittance — certifies TDS compliance or exemption. Form 15CB: CA certificate required when remittance exceeds Rs 5 lakh per transaction. The bank processes the foreign remittance only after receiving these forms. Exempt remittances (imports, travel up to prescribed limits, EMIs on ECBs) do not need 15CB.
4. Lower / Nil TDS Certificate (Section 398)
The non-resident or Indian payer can apply to the AO for a lower or nil TDS certificate under Section 398 of ITA 2025 — useful when DTAA provides zero tax or when the non-resident has losses in India offsetting the income. Prevents unnecessary TDS and avoids refund proceedings for the non-resident.
5. Consequences of Non-Deduction
- Payer becomes "assessee in default" (Section 407)
- Must pay the full tax not deducted
- Interest at 1% per month from payment date (Section 415)
- Penalty equal to TDS amount (Section 440)
- 30% disallowance of the expense in payer income computation
6. Why TaxClue
Non-resident TDS involves international tax treaty analysis, DTAA rate determination, and Form 15CA/15CB filing. Getting it wrong creates significant liability for the Indian payer. TaxClue handles all cross-border payment TDS compliance. Contact us for expert non-resident TDS advisory under ITA 2025.