TDS on Payments to Non-Residents Under Section 393(2)

Any person paying a non-resident a sum chargeable to tax in India must withhold tax at the time of credit or payment, whichever is earlier. Under the Income-tax Act, 2025 this provision, formerly Section 195, is now Section 393(2). The rate is the lower of the domestic rate and any applicable treaty rate, subject to the recipient furnishing the required documentation.

The threshold question: is it chargeable in India?

Withholding applies only to sums chargeable to tax in India. This analysis should come first, and it is frequently skipped in favour of withholding defensively at a high rate.

Categories requiring care:

Fees for technical services and royalties, where the treaty definition often differs from the domestic one, and where the “make available” condition in several treaties substantially narrows what is taxable.

Business profits, taxable only where there is a permanent establishment, making the PE analysis determinative.

Software payments, where characterisation as royalty versus business income has been extensively litigated and turns on the nature of the rights transferred.

Reimbursements, where a genuine cost reimbursement without mark-up may not be chargeable at all — though the evidentiary burden sits with the payer.

Determining the rate

Where the sum is chargeable, the rate is the lower of the domestic rate applicable to that income and the treaty rate.

Treaty benefit is conditional. A valid tax residency certificate is required, along with the prescribed declaration in Form 10F, and beneficial ownership and anti-abuse conditions must be satisfied. Where the recipient has no PAN, a higher withholding rate may apply notwithstanding the treaty, subject to specified relief conditions.

Form 15CA and 15CB

Remittances to non-residents generally require Form 15CA, with an accountant’s certificate in Form 15CB in specified cases. Certain categories are exempt from the requirement.

Banks will not process remittance without the requisite forms, so this is a transaction gating item rather than a compliance afterthought.

Consequences of under-withholding

Disallowance of the expenditure in computing the payer’s income, interest on the shortfall, penalty, and treatment as an assessee in default. The disallowance is often the largest cost, because it converts a withholding question into a materially higher tax liability for the payer.

Where there is genuine doubt about chargeability or rate, an application for a lower or nil withholding certificate is the safer route.

Related reading

• the old-to-new section mapping — Income-tax Act 2025 Section Mapping: Old vs New Reference
• the 2025 Act overview — Income-tax Act, 2025 vs the 1961 Act: What Actually Changed
• permanent establishment risk — Permanent Establishment Risk for Foreign Companies in India

Sources

• Section 393(2), Income-tax Act, 2025; Form 15CA/15CB requirements — incometax.gov.in