Section 195 requires any person paying a non-resident or foreign company to deduct TDS if that income is chargeable to tax in India — there is no minimum threshold. Default rates: 20% on royalty and fees for technical services (doubled from 10% by Finance Act 2023), 30% for a non-resident individual and 40% for a foreign company on other income, plus surcharge and 4% cess. A DTAA can reduce the rate — but only if the payee furnishes a Tax Residency Certificate + Form 10F. Taxable remittances above Rs 5 lakh a year need Form 15CB (CA certificate) + Form 15CA.
Section 195 TDS Rates — Default vs DTAA
Default domestic TDS rates for FY 2025-26 (before surcharge and 4% cess) and the typical DTAA cap. The lower of the two applies once the non-resident furnishes TRC + Form 10F.
| Payment to non-resident | Default rate | DTAA may reduce to | Forms |
|---|---|---|---|
| Royalty | 20% | 10–15% | 15CA + 15CB |
| Fees for Technical Services (FTS) | 20% | 10–15% | 15CA + 15CB |
| Interest — foreign-currency loan | 5% | 5–15% | 15CA + 15CB |
| Interest — other | 30% / 40%* | 10–15% | 15CA + 15CB |
| LTCG on listed equity — s.112A (>Rs1.25L) | 12.5% | May be exempt | 15CA + 15CB |
| STCG on listed equity — s.111A | 20% | Per treaty | 15CA + 15CB |
| Business / other income — NR individual | 30% | Depends on PE | 15CA + 15CB |
| Business / other income — foreign company | 40% | Depends on PE | 15CA + 15CB |
| No valid PAN — s.206AA higher rate | 20% or above, higher | TIN + 10F relaxation | 15CA + 15CB |
* 40% where the payee is a foreign company. Add applicable surcharge + 4% health & education cess to domestic rates; DTAA rates apply flat without cess/surcharge. STCG u/s 111A rose to 20% and LTCG u/s 112A to 12.5% (Rs 1.25L annual exemption) from 23 July 2024.
Who Must Deduct TDS under Section 195?
Any person — a resident individual, company, firm, LLP or even another non-resident — making a payment to a non-resident or foreign company that is chargeable to tax in India must deduct TDS. Unlike resident-payment sections, Section 195 has no minimum threshold: if any part of the sum is taxable in India, TDS applies. Common cases: Indian companies paying overseas software or SaaS vendors, importers remitting for foreign technical services, and Indian subsidiaries paying royalty or management fees to a foreign parent.
Form 15CA and 15CB — When Are They Needed?
Before a bank processes any foreign remittance it checks the Rule 37BB position. Whether you need a CA certificate depends on the amount and taxability:
| Remittance situation | 15CB (CA)? | 15CA part |
|---|---|---|
| Taxable remittance > Rs 5 lakh (aggregate/FY) | Yes | Part C |
| Taxable remittance ≤ Rs 5 lakh | No | Part B |
| Non-taxable, any amount (Part A up to Rs 5L) | No | Part A / D |
| Falls in Rule 37BB specified-exempt list | No | Not required |
Rs 5 lakh is the aggregate of taxable remittances to one payee in a financial year. Form 15CB = CA certificate on nature, taxability and rate; Form 15CA = the online declaration filed on incometax.gov.in citing the 15CB acknowledgement.
If the non-resident has no valid PAN, Section 206AA forces TDS at the rate in the section or 20%, whichever is higher — overriding a lower DTAA rate. The relief: where the payment is covered by a DTAA, furnishing the payee's home-country TIN, address and Form 10F can avoid the 206AA higher rate. Fix the documentation before you remit.
Making a foreign payment and unsure about 15CA/15CB or the rate?
Talk to a Cross-Border Expert →DTAA Benefit — Documents the Payee Must Give You
A Double Taxation Avoidance Agreement rate (often 10–15%) applies only when the non-resident hands the Indian payer the right papers under Section 90. Without them, deduct at the full domestic rate.
| Document | Purpose | Issued by |
|---|---|---|
| Tax Residency Certificate (TRC) | Proves treaty-country tax residence | Foreign country's tax authority |
| Form 10F (online) | Declares DTAA eligibility where the TRC lacks details | Filed by NR on incometax.gov.in |
| No-PE declaration | Business income not taxable without a PE | Signed by the foreign entity |
| PAN / home-country TIN | Avoids the s.206AA higher rate | IT Dept / foreign authority |
TDS on Foreign Software & SaaS
After the Supreme Court ruling in Engineering Analysis Centre of Excellence (2021), a standard shrink-wrap or end-user software licence is not royalty — so no Section 195 TDS. But a customised licence granting the right to use 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 widely, so verify each vendor.
Likely NO TDS
- Off-the-shelf shrink-wrap / end-user software
- Standard SaaS with no IP transfer (per Engineering Analysis)
- Reimbursement of pure cost with no income element
TDS likely applies
- Customised software / right to commercially exploit IP
- Technical/consultancy services (FTS)
- Interest, royalty, dividend or Indian-source gains
Paying an overseas SaaS or software vendor? Get a withholding position before you remit.
Get a TDS Opinion →Lower or Nil Deduction — Section 195(2) & 197
If only part of a payment is taxable, or none is, don't self-decide — use one of the two AO routes so you are never treated as an "assessee in default":
- Section 195(2) — the payer applies to the Assessing Officer before remitting for a determination of the taxable portion / TDS amount.
- Section 197 — the payee (NR/foreign entity) applies for a nil or lower-deduction certificate; the payer then deducts at the certificate rate.
Deposit the TDS & File Form 27Q
Deposit the deducted tax via Challan 281 under the Section 195 code by the 7th of the next month (30 April for March), then report it in the non-resident TDS return.
Royalty to a foreign vendor · no DTAA
Same royalty · India–Singapore DTAA @ 10%
- Determine taxability & the DTAA rate
- Collect TRC + Form 10F + No-PE
- Deduct at correct rate (206AA if no PAN)
- Form 15CB from a CA (if > Rs 5L)
- File Form 15CA on the portal
- Deposit via Challan 281 by the 7th
- File Form 27Q quarterly
- Issue Form 16A to the payee
Keep referencing "Section 195" for search and legacy contracts. Under the new Income-tax Act, 2025 (effective 1 April 2026, AY 2026-27) the same provision is renumbered as Section 393(2), and Forms 15CA/15CB are being renamed — the rates and mechanics are unchanged. We track both so your compliance stays correct across the transition.
Section 195 TDS — Frequently Asked Questions
Related TaxClue services
Paying a Non-Resident or Foreign Company?
From taxability and the DTAA rate to Form 15CB, 15CA, Challan 281 and Form 27Q, TaxClue's CA-led team handles your Section 195 compliance end to end — 100% online, across India.