Payments of royalties, technical fees, interest or dividends out of India attract withholding under Section 195. A tax treaty can cut the rate, but only with a valid residency certificate, Form 10F and a defensible beneficial-ownership position, backed by Form 15CA and 15CB.
The Indian payer, not the foreign recipient, is treated as in default if tax is under-withheld. Establish the treaty position and documentation before the remittance, not after a notice.
Section 195 puts the obligation to deduct tax at source on the Indian person making a payment to a non-resident. If the deduction is not made, or is made at too low a rate, it is the payer who is treated as in default, faces interest, and can lose the deduction for the expense. For a foreign group, this means the Indian subsidiary or customer will scrutinise every cross-border invoice, because the tax cost of getting it wrong falls on them, not on the overseas recipient.
The correct rate depends on the character of the payment. Royalties, fees for technical services, interest and dividends are each treated differently, and mislabelling a payment, for example describing a technical service as a reimbursement, does not change the analysis if the substance points the other way. The first step is always to characterise the payment accurately against the Act and the applicable treaty.
A Double Taxation Avoidance Agreement can cap the withholding rate below the domestic rate, but the relief is not automatic. The foreign recipient must hold a valid tax residency certificate issued by its home jurisdiction, file Form 10F, and satisfy the treaty conditions, including beneficial ownership and any limitation-of-benefits article. Where a treaty rate is claimed without this support, the payer is exposed if the position is later questioned.
Treaty analysis also has to account for the way India reads beneficial ownership and substance. A recipient interposed purely to access a favourable treaty may be denied relief. We assess whether the treaty position is genuinely available before it is relied upon, so the rate applied at source is one that will survive later examination.
For most taxable foreign remittances, the bank will not release funds until the remitter has filed Form 15CA and, above the prescribed threshold, obtained an accountant's certificate in Form 15CB. Form 15CB confirms the nature of the payment and the rate of withholding, and Form 15CA is the remitter's online declaration. Getting these right the first time avoids blocked payments and repeated queries from the authorised dealer bank.
We coordinate the characterisation, the treaty position and the documentation so that the forms are consistent with the underlying contract and the certificate. Where remittances are recurring, we help build a repeatable process that the finance team can run with confidence rather than treating each payment as a fresh problem.
Where the standard rate over-deducts against the true liability, an application can be made to the tax authority for a certificate authorising deduction at a lower or nil rate. This is particularly valuable for large or recurring payments, and for structures where cash flow matters, because it removes the need to over-withhold and then chase a refund.
The strongest protection against a later dispute is a clear, documented position taken before the payment is made. We prepare that position, obtain lower-deduction certificates where appropriate, and represent the payer if the tax authority questions the withholding on a cross-border payment.
The following official sources support the legal positions summarised on this page and should be consulted for the current statutory text, procedure and notifications.
Content reviewed by the AMLEGALS Tax and Cross-Border Payments team. Law reviewed as of: 21 July 2026. This page is general information about legal processes in India and is not legal advice. A formal opinion requires review of the specific facts and documents.
Short, direct, on the record.
The Indian payer is responsible. Section 195 places the obligation to deduct and deposit tax on the person making the payment. If the payer fails to deduct correctly, it can be treated as an assessee in default and face the tax, interest and disallowance of the expense, so the risk sits with the Indian party even though the income belongs to the foreign recipient.
A Double Taxation Avoidance Agreement between India and the recipient country may cap the rate on royalties, fees for technical services, interest or dividends below the domestic rate. To claim it, the foreign recipient must provide a valid tax residency certificate from its home country, Form 10F, and meet the beneficial-ownership and any limitation-of-benefits conditions in the treaty.
Form 15CA is the remitter's declaration of the payment and the tax position, filed online. Form 15CB is a chartered accountant's certificate confirming the nature of the payment and the rate of withholding, required for most taxable foreign remittances above the prescribed threshold. Banks typically require both before releasing the funds.
Yes. Where the payer or recipient believes the standard rate is higher than the correct liability, an application can be made to the tax authority for a certificate authorising deduction at a lower or nil rate. This is useful for recurring payments or where the treaty position needs official comfort before large remittances.
It can. Certain digital and cross-border transactions attract separate charges or expanded source rules, and the interaction with withholding must be assessed for the specific payment. The correct analysis depends on the nature of the service, the contracting parties and the year in question, and should be confirmed rather than assumed.
Share the payment type, the recipient's country and your current withholding approach for a confidential preliminary scope discussion.