TDS on Payments to Non-Residents: Section 195 Guide

Apply Section 9 (deemed accrual) and the relevant DTAA in parallel. SaaS payments to a non-resident vendor without a PE in India are typically not taxable as business profits under most modern DTAAs (because there's no PE). But the same payment could be re-characterised as royalty or fees for technical services (FTS) - and that's where most disputes arise.

If the payment is taxable, apply the lower of the DTAA rate and the Income-tax Act rate. DTAA benefits require a Tax Residency Certificate (TRC) and Form 10F from the recipient. Without a TRC, you'll default to the Act rate plus surcharge and cess.

Common DTAA rates: 10-15% for royalty/FTS in most Indian treaties. The 2024 Singapore treaty amendment lowered FTS to 10% with stricter beneficial-ownership tests - this matters for any payment routed via Singapore holding companies.

Every foreign remittance above ₹5 lakh in a financial year per remittee needs Form 15CA. If the payment is taxable, you also need Form 15CB from a CA certifying the rate and DTAA application. The bank will not process the SWIFT without these.

We file 15CA Part C for taxable remittances (with 15CB), Part D for genuinely exempt categories, and Part A for sub-₹5 lakh transactions. Misclassifying as Part D when the payment is taxable is the single biggest mistake we see - and it triggers Section 271I penalty.

Don't forget the 2% equalisation levy on e-commerce supply by non-residents (in force until withdrawn for non-e-commerce). It runs parallel to Section 195 - it's not a substitute for withholding tax. Test both, apply whichever is applicable, and document the analysis.