Section 195 — TDS on Payments to Non-Residents & Foreign Companies

The default domestic rates (before surcharge and 4% cess) are: 20% on royalty and fees for technical services, 5% on interest from a foreign-currency loan, 30% for a non-resident individual and 40% for a foreign company on business/other income, 12.5% on LTCG under Section 112A and 20% on STCG under Section 111A. A DTAA can reduce these where the payee furnishes TRC and Form 10F.

No. Section 195 has no minimum threshold. If any part of the payment to a non-resident is chargeable to tax in India, TDS must be deducted regardless of the amount — even on small remittances. This is different from resident-payment sections like 194C or 194J that only apply above a limit.

The Finance Act 2023 doubled the domestic TDS/tax rate on royalty and fees for technical services paid to non-residents from 10% to 20%, effective AY 2024-25. Add surcharge and 4% cess for the effective rate. Most DTAAs still cap royalty/FTS at 10–15%, so a non-resident who furnishes a TRC and Form 10F usually pays the lower treaty rate.

Both. Section 195 applies to any non-resident — a non-resident individual (NRI), a foreign company or any other non-resident entity. Foreign companies attract 40% on business/other income while non-resident individuals attract 30%; specified incomes like royalty and FTS are 20% for both. The treaty rate applies if beneficial and documented.

No. Form 15CB (a CA certificate) is required only when taxable remittances to a payee exceed Rs 5 lakh in aggregate in a financial year, along with Form 15CA Part C. For taxable remittances up to Rs 5 lakh, only Form 15CA Part B is filed. For non-taxable remittances up to Rs 5 lakh, Part A applies, and remittances in the Rule 37BB specified-exempt list need neither form.

Form 15CB is a certificate issued by a Chartered Accountant certifying the nature of the remittance, its taxability, the applicable TDS rate and any DTAA relief. Form 15CA is the remitter's online declaration filed on incometax.gov.in that references the 15CB acknowledgement number. The bank needs both before processing a SWIFT transfer above the threshold.

Form 15CB is required when the payment to a non-resident is taxable in India and the aggregate of such taxable remittances to that payee exceeds Rs 5 lakh in the financial year. Below Rs 5 lakh no CA certificate is needed — only Form 15CA Part B. The CA must verify the TRC and Form 10F before certifying a beneficial DTAA rate.

To claim the lower treaty rate: (1) obtain a Tax Residency Certificate (TRC) from the home country's tax authority; (2) file Form 10F online on the Indian income tax portal; (3) give a No-Permanent-Establishment declaration where business income is involved; and (4) provide PAN or a home-country TIN. The Indian payer then deducts at the DTAA rate under Section 90. Without these documents the payer must deduct at the higher domestic rate.

Section 206AA applies: TDS is deducted at the rate in the relevant section or 20%, whichever is higher, even overriding a lower DTAA rate. However, where the payment is covered by a DTAA, the higher rate can be avoided if the non-resident furnishes name, address, home-country Tax Identification Number (TIN) and Form 10F. Fix the documentation before remitting.

Yes, in practice. Form 10F is a self-declaration of DTAA eligibility and must now be filed electronically on the income tax portal. It is required whenever the TRC does not contain all the prescribed particulars (status, nationality, TIN, period, address), which is almost always. Without a valid TRC and Form 10F, the payer cannot apply the beneficial treaty rate.

Often not. After the Supreme Court ruling in Engineering Analysis Centre of Excellence (2021), payment for a standard shrink-wrap or end-user software licence is not royalty, so no Section 195 TDS applies. But a customised licence granting a right to exploit IP is royalty, and a cloud/SaaS service can be fees for technical services — both attract 20% (or the DTAA rate). Some older treaties define royalty more broadly, so verify each vendor and take a tax opinion.

Generally no. A simple purchase of goods from a foreign supplier, where the income is not chargeable to tax in India (no business connection or PE and it is a sale of property outside India), does not attract Section 195 TDS. But payments dressed up as goods that actually include royalty, technical fees or a taxable service element do attract TDS — the substance of the payment governs.

If the payer believes only a portion of the payment is taxable in India, they can apply to the Assessing Officer under Section 195(2) before remitting. The AO issues an order fixing the taxable amount or TDS rate, and the payer deducts accordingly. This protects the payer from later being treated as an assessee in default on the non-taxable portion.

Section 195(2) is applied for by the payer (deductor) to determine the taxable portion of a specific payment. Section 197 is applied for by the payee (the non-resident) for a nil or lower-deduction certificate based on their overall expected tax liability. In both cases the payer deducts at the rate fixed by the Assessing Officer and is protected from default.

Form 27Q is the quarterly TDS return for tax deducted on payments to non-residents under Section 195 and related sections. The deducted tax is first deposited via Challan 281 by the 7th of the next month (30 April for March deductions), then reported in Form 27Q, and Form 16A is issued to the payee from TRACES.

Yes. Under the new Income-tax Act, 2025 (effective 1 April 2026, AY 2026-27), the provision currently known as Section 195 is renumbered as Section 393(2), and Forms 15CA/15CB are being renamed. The rates, thresholds and compliance mechanics are unchanged — only the numbering. Contracts and searches still use "Section 195", which remains the primary reference.