Can a tax treaty reduce withholding?

Potentially, subject to eligibility, supporting documents and the relevant domestic law.

What changed on 1 April 2026?

The Income-tax Act, 2025 commenced. Its section 195 is a different provision; the non-resident withholding framework is principally under section 393.

Income Tax Law | Non-Resident TDS

Section 195 of Income Tax Act, 1961 - TDS on Payments to Non-Residents

Q: Does Section 195 apply to every foreign remittance?

No. Deduction under the 1961 Act depended on whether the sum was chargeable to Indian tax, although reporting requirements could still apply.

Section 195 of the Income-tax Act, 1961 governed tax deduction at source (TDS) on sums chargeable to Indian income tax when paid or credited to non-residents or foreign companies. This guide explains the chargeability test, timing, certificates, reporting and the transition to the Income-tax Act, 2025.

Law applicable from 1 April 2026: The Income-tax Act, 2025 applies from tax year 2026-27, subject to transitional and savings provisions. The new Act's section 195 is a different provision concerning tax on specified income; do not confuse it with section 195 (Other sums) of the 1961 Act. The corresponding non-resident TDS framework is principally under section 393 of the 2025 Act. Check the current text and rules for any payment made after the changeover.

Meaning and scope of Section 195

The provision applied to any person, including an individual or business, responsible for paying a non-resident (other than a company) or a foreign company interest or another sum chargeable under the 1961 Act, other than salary and interest governed by specified separate TDS sections. It is the taxable character of the remittance, not merely the foreign destination of funds, that matters.

Examples potentially requiring analysis include royalty, fees for technical services, taxable interest, business income attributable to India, capital gains and other income taxable in India. A payment is not automatically taxable simply because its recipient is overseas.

Explanation of Section 195 subsections

Section 195(1): Who deducts tax and when?

Tax was ordinarily deducted at the earlier of credit to the payee's account or actual payment by any mode, at the applicable rates in force. A credit to a suspense or interest-payable account was also treated as credit to the payee. The special timing rule for certain interest payable by the Government, public sector banks and public financial institutions operated at payment. Separate provisions apply to salary and certain specified categories of interest.

Explanation 2: The obligation is not restricted to a payer located in India; its application does not depend solely on the non-resident having an office, residence, business connection or physical presence in India.

Section 195(2): Determining the chargeable portion

Where only part of a payment is chargeable, the payer may apply to the Assessing Officer for determination of the appropriate taxable proportion. TDS is then deducted on the proportion determined under the order. The prescribed form and procedure must be checked for the relevant period.

Sections 195(3), 195(4) and 195(5): Certificate for receipt without deduction

Subject to the prescribed rules and conditions, an eligible recipient could apply to the Assessing Officer for a certificate authorising receipt without TDS. The certificate operated for its specified validity period unless cancelled earlier. The Board was empowered to prescribe the applicable cases, conditions and procedure.

Section 195(6): Reporting payments to non-residents

The payer was required to furnish prescribed information for remittances to non-residents or foreign companies, whether or not the sum was chargeable, subject to the rules and reporting exceptions. Under the earlier framework, Forms 15CA and 15CB and Rule 37BB were relevant. For the 2025 Act regime, the Income Tax Department identifies section 397(3)(d) and Forms 145 and 146 as the corresponding reporting framework. Check the form applicable on the remittance date.

Section 195(7): Cases requiring determination

The Board could notify classes of payers or cases in which an application to the Assessing Officer for determination of the chargeable proportion was mandatory, even if the payer would otherwise rely on its own analysis.

How to decide whether TDS applies

Identify the recipient's residential status and the true nature of the payment.
Examine whether the sum is chargeable to tax in India under the domestic statute, including relevant deeming provisions.
Review the applicable Double Taxation Avoidance Agreement (DTAA), eligibility, tax residency certificate and other required documentation.
Determine the applicable rate, including treaty relief where available, surcharge and cess as applicable.
Consider whether a lower/nil deduction certificate or chargeable-proportion order is necessary.
Complete deduction, deposit, TDS return, certificate and foreign-remittance reporting obligations under the rules governing the relevant date.

TDS rate under Section 195

Section 195 did not prescribe one uniform rate. The applicable rate depended on the nature of income, the Finance Act, the recipient's status, and any available treaty relief. Rates for royalty, technical services, interest, dividends and capital gains can differ. Do not apply a blanket 20% rate to all overseas remittances. Refer to the Income Tax Department TDS rates and the applicable law for the payment date.

Illustrative example

An Indian company proposes to pay a foreign consultant Rs. 10,00,000. Before deducting tax, it must establish whether the fee is taxable in India under the relevant law and treaty. If the payment is not chargeable, Section 195 TDS is not triggered merely because the consultant is overseas; reporting requirements may still need consideration. If only a portion is chargeable, an appropriate determination may be sought. The example does not assume any particular tax rate.

Important judicial principle

In GE India Technology Centre Pvt. Ltd. v. CIT (2010), the Supreme Court explained that withholding under Section 195 is linked to sums chargeable to tax under the Act. The application of that principle depends on the facts, the income classification and any applicable treaty.

Income-tax Act, 2025: Transition and corresponding provisions

The Income-tax Act, 2025 commenced on 1 April 2026. For earlier tax years, the 1961 Act remains relevant under the savings framework. The withholding rules have been reorganised: section 393 addresses tax deduction at source, while section 397(3)(d) is relevant to information concerning non-resident remittances. References to section 195 in old documents must not be read as references to section 195 of the 2025 Act.

Frequently asked questions

Does Section 195 apply to every foreign remittance?

No. Deduction under the old section 195(1) was linked to sums chargeable to tax in India. Separate remittance information requirements could still apply.

Can an individual buying property from an NRI have TDS obligations?

Yes. Where consideration paid to a non-resident seller includes a sum chargeable in India, the applicable non-resident TDS provisions must be evaluated; the resident-seller property TDS rule should not be assumed to apply.

Can a tax treaty reduce the withholding rate?

Potentially, subject to treaty eligibility, documentation and the relevant domestic law.

Are Form 15CA and Form 15CB still used in 2026?

For the new regime, the Department identifies Forms 145 and 146 as corresponding forms. The correct form depends on the date of remittance and transitional rules.

Official references

Updated 27 October 2026. General legal information only. Check subsequent amendments, notifications, treaty terms and the applicable tax year before acting.