Quick answer: Withholding tax India rules require the Indian payer to deduct tax before sending money to a non-resident. Since 1 April 2026 the main provision is section 393(2) of the Income-tax Act, 2025, formerly section 195. Royalty and fees for technical services are withheld at 20% plus surcharge and cess, or the lower rate in a tax treaty.
- The domestic 20% on royalty and technical fees becomes 20.8% or 21.84% once surcharge and 4% cess are added.
- A treaty rate needs the payee’s tax residency certificate and Form 41 (old Form 10F).
- Most remittances need Form 145 (old 15CA). Above ₹5 lakh a year, a CA certificate on Form 146 (old 15CB) is also needed, unless you hold an officer’s certificate.
- Non-resident deductions are reported quarterly on Form 144, formerly Form 27Q.
How is withholding tax calculated on a payment abroad?
Start with the domestic rate. Then check the tax treaty. The payer applies whichever is better for the payee, as long as the paperwork is in place.
Suppose your Indian subsidiary pays its German parent a ₹20 lakh royalty for using the group’s trademark.
| Basis | Rate | Tax withheld |
|---|---|---|
| Domestic rate with 4% cess (no surcharge) | 20.8% | ₹4,16,000 |
| India-Germany treaty rate, with TRC and Form 41 | 10% | ₹2,00,000 |
The treaty route saves ₹2,16,000 of withholding. No TRC and Form 41, no saving. PwC’s India withholding tax table lists the treaty rates by country.
Then the forms. ₹20 lakh is above ₹5 lakh, so a chartered accountant issues Form 146 first, and you file Part C of Form 145 before the money leaves. The Income Tax Department’s Form 145 FAQs list all four parts. Penalty for skipping it: up to ₹1 lakh.
How is withholding on non-residents different from TDS on residents?
The idea is the same. The rates and forms differ.
TDS on salary and payments to resident contractors sit in sections 392 and 393(1). A resident independent contractor billing professional fees faces 10% TDS once the payments cross ₹50,000, and the payer reports it on a resident return rather than the non-resident one.
Payments to non-residents fall under section 393(2), at rates in force or treaty rates. They also carry the remittance forms in our Form 15CA and 15CB entry. If the payee has no PAN, the rate can rise to 20% or more, though a TRC and other details can replace the PAN.
When does withholding tax affect an EOR arrangement?
Rarely on the employees. Their salaries are paid in India and taxed as salary, so the non-resident rules only come into play on the cross-border invoice and on contractors.
Your fee to an Indian EOR is income of an Indian resident company. So section 393(2) does not apply to it. Paying an Indian freelancer directly from abroad is different, because misclassification then becomes your risk. Our guide to the tax implications of hiring contractors vs employees sets out the trade-off.
How does Remunance handle withholding for your India setup?
Remunance runs independent contractor engagement and compliance for Indian freelancers. Right TDS. Full records. If you already run an Indian entity, our compliance management service covers its employment filings, while remittance forms stay with your chartered accountant. To check a cross-border payment before it leaves India, speak to our India compliance desk.
What else do people ask about withholding tax in India?
What is the withholding tax rate on payments to non-residents?
It depends on the income. Royalty and technical fees attract 20% plus surcharge and cess under domestic law, dividends 20%, and many treaties cut these to 10% to 15%.
Is Form 15CA required for every foreign payment?
Form 145, its replacement, is needed for most remittances to non-residents. Part D covers payments not chargeable to tax, and some LRS and RBI purpose codes are exempt.
Does a DTAA always reduce withholding tax?
Only when the payee proves treaty residence. Without a TRC and Form 41, the domestic rate applies even if the treaty rate is lower.