TDS on Foreign Services

TDS on payments to a foreign service provider depends on classification (FTS vs. business income vs. royalty) — there is no flat rate and no minimum threshold.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

20% (FTS) or per specific category

Section & code

Section 393(2), Sl. No. 17, Code 1057

Forms typically needed:

Form 15CA Form 15CB Form 10F if claiming DTAA

Cross-Border TDS Decision Helper

Nature of payment

Payee has valid PAN?

TRC + Form 41 furnished?

Indicative Act rate

20%

Domestic Act rate under Section 393(2) for royalty/FTS to a non-resident non-company — doubled from 10% by Finance Act 2023 (effective 1 April 2023), unchanged since. Classify carefully: royalty and FTS have different treaty definitions.

Without a TRC and Form 41, the treaty rate can't be applied — the Act rate above governs until documentation is furnished.

This is a decision aid, not a filing determination — always confirm classification and the exact treaty article with a professional before remitting.

Why 'foreign services' isn't one single TDS rule

Unlike domestic TDS sections, which map a specific payment type to a specific rate, Section 393(2) (formerly Section 195) is a catch-all covering any sum payable to a non-resident that's chargeable to tax in India — excluding salary. This means the actual TDS obligation on a payment to a foreign service provider depends entirely on how that payment is classified, not on a lookup table.

The first and most important question is not 'what's the rate' but 'is this even taxable in India at all.' If the foreign provider has no business connection or permanent establishment in India and the service is rendered and used entirely outside India, the income may not be taxable in India in the first place — in which case no TDS arises, regardless of the amount.

The classification test that determines everything else

Once taxability is established, classify the payment: is it Fees for Technical Services (FTS), royalty, business income attributable to a permanent establishment, or another category entirely? Each has different rate implications and different treaty treatment. A payment for genuine consultancy advice is typically FTS; a payment for the use of a trademark or process is typically royalty; a payment for services with no technical, managerial or consultancy character may not be FTS at all.

This classification step is where most disputes with the tax department arise — the underlying payment often has elements of more than one category, and how you characterise it upfront determines the rate, the DTAA article that applies, and ultimately what a tax officer will accept on review.

No threshold — the rule that surprises new practitioners

Domestic TDS sections almost always specify a threshold below which no deduction is required. Section 393(2) has no such threshold — TDS applies from the first rupee of India-taxable income, regardless of the payment size. A ₹10,000 payment to a foreign consultant carries the same in-principle TDS obligation as a ₹10 lakh one, once taxability and classification are established.

Applying the DTAA where one exists

If India has a Double Taxation Avoidance Agreement with the payee's country of residence, the payer can apply the lower of the domestic Act rate or the treaty rate — provided the payee furnishes a valid Tax Residency Certificate and Form 10F, and in some cases a no-permanent-establishment declaration. Without this documentation, the treaty rate cannot be applied and the Act rate governs by default.

The treaty rate itself varies by country and by the specific article covering that income category — there is no single 'DTAA rate.' Always check the exact article for FTS, royalty, or business income in the specific treaty, rather than assuming a round figure like 10% or 15% applies universally.

Worked example

A ₹8 lakh consultancy fee paid to a UK-based advisor

An Indian company pays a UK consultant ₹8,00,000 for strategic advisory services delivered remotely. This is classified as FTS. Without DTAA documentation, the domestic rate of 20% applies: ₹1,60,000 TDS, requiring Form 15CA and, since the amount exceeds ₹5 lakh, Form 15CB from a chartered accountant before the remittance can be processed by the bank. If the consultant furnishes a valid UK TRC and Form 10F, the India-UK DTAA's FTS article may permit a lower rate — the specific article must be checked before applying it.

Common mistakes & litigation traps

Treating every foreign service payment as automatically taxable

Not every payment to a non-resident is taxable in India — if there's no business connection, no PE, and the service is rendered and consumed outside India, the income may fall outside Indian tax jurisdiction entirely.

Applying a round DTAA rate without checking the specific article

"10% under the treaty" is not a universal figure — the actual rate depends on the specific article (FTS vs royalty vs business income) in that specific country's treaty.

Skipping Form 15CB because the payment 'seems small'

The CA certificate threshold is based on aggregate payments to that payee in the year, not a single transaction — track cumulative payments, not just the current one.