Section 195 on foreign payments
Withholding on payments to non-residents, the DTAA, and the 15CA/15CB forms
Section 195 governs TDS on payments to non-residents, and it works differently from the domestic sections. There is no minimum threshold: TDS applies on any sum paid to a non-resident that is chargeable to tax in India (for example fees for technical services, royalty, or certain software and online-service payments). The rate depends on the nature of the income and on the relevant Double Taxation Avoidance Agreement (DTAA), which can reduce it, often on production of the recipient's tax residency certificate. Most foreign remittances also need Form 15CA, and frequently a Chartered Accountant's certificate in Form 15CB.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
When Section 195 applies
Section 195 applies when you pay a non-resident a sum that is chargeable to tax in India. The most common cases for an SME are fees for technical or professional services from a foreign provider, royalty or licence fees, and certain payments for software or online services where they are taxable in India. Unlike the domestic sections, there is no exemption threshold, even a modest payment can attract withholding if the income is chargeable here.
The DTAA can reduce the rate
India's Double Taxation Avoidance Agreements with other countries often set a lower withholding rate than the domestic one for items like royalty and technical fees, and a payment may not be taxable in India at all under the treaty. To apply the treaty rate you generally need the recipient's tax residency certificate (TRC) and Form 10F. Getting this right reduces the cost, and avoids over-deducting from a foreign supplier who may push the cost back onto you.
tipBefore remitting, check the DTAA with the supplier's country and obtain their tax residency certificate and Form 10F. The treaty rate is often well below the domestic rate, but you need the documents to apply it.
Form 15CA and 15CB
Most foreign remittances require Form 15CA (a declaration by the remitter) and, above the prescribed limits or where the sum is taxable, Form 15CB (a certificate from a Chartered Accountant on the nature of the payment and the correct withholding). The bank will usually ask for these before processing the remittance. Build the 15CA/15CB step into your payment timeline for foreign vendors, and take professional help, the chargeability and treaty analysis is genuinely technical and the cost of under-deducting falls on you.
warningIf you fail to deduct under Section 195 where you should have, you can be treated as an assessee-in-default for the tax, plus interest, and the expense can be disallowed. Foreign payments are exactly where professional advice pays for itself.
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Source / notes
- Income-tax Act 1961 s.195 (TDS on payments to non-residents) (TDS consolidated into the Income-tax Act 2025 s.393)
- Income-tax Act 1961 s.90 (DTAA relief) + Rule 37BB (Form 15CA/15CB)
- Income-tax Act 1961 s.201 (consequences of failure to deduct)
Frequently asked questions
Do I have to deduct TDS when I pay a foreign supplier?+
Often yes. Section 195 requires TDS on any sum paid to a non-resident that is chargeable to tax in India, and unlike domestic sections there is no minimum threshold. Common cases are technical or professional fees, royalty, and certain software and online-service payments. Whether and how much depends on the income type and the relevant treaty.
Can a tax treaty reduce the Section 195 rate?+
Yes. India's Double Taxation Avoidance Agreements often set a lower withholding rate than the domestic one, and some income may not be taxable in India at all under the treaty. To apply the treaty rate you generally need the recipient's tax residency certificate and Form 10F. Without them, the higher domestic rate usually applies.
What are Form 15CA and 15CB?+
Form 15CA is the remitter's declaration for a foreign payment; Form 15CB is a Chartered Accountant's certificate on the nature of the payment and the correct withholding, required above prescribed limits or where the sum is taxable. Banks usually require them before processing the remittance, so plan for them in your payment timeline.
What if I under-deduct on a foreign payment?+
The risk falls on you. Fail to deduct under Section 195 where required and you can be treated as an assessee-in-default for the tax, with interest, and the expense can be disallowed. Because the chargeability and treaty analysis is technical, foreign payments are a clear case for professional advice before you remit.
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