TDS on Payments to Your Foreign Parent: Section 195, DTAA Relief and the New Form 145/146 (2026)

Your Indian subsidiary owes the parent a management fee. The invoice is approved, the funds are ready, and the bank refuses to process the remittance. This is where most foreign-owned Indian companies first meet Section 195 — and where a surprising amount of money is lost to withholding that was never actually payable, or to short deduction that becomes the Indian company’s own liability.

The short version

• Any person paying a non-resident a sum chargeable to tax in India must withhold tax at the time of credit or payment, whichever is earlier. There is no threshold — the obligation applies from the first rupee.
• The obligation sat in Section 195 of the Income-tax Act, 1961. From 1 April 2026 the Income-tax Act, 2025 is in force and the corresponding provision is Section 393. The substance is carried forward.
• Form 15CA and Form 15CB have been renumbered to Form 145 and Form 146 for remittances from 1 April 2026. Same four-part structure, same ₹5 lakh CA-certificate threshold.
• Treaty relief is available but conditional: you need a valid Tax Residency Certificate, Form 10F, and a no-permanent-establishment declaration on file before you deduct at the lower rate.
• Get it wrong and the Indian company — not the foreign parent — bears the tax, interest under the short-deduction provisions, and potential disallowance of the expense.

1. What changed on 1 April 2026

If you are reading an article published before 2026, or a bank circular that has not been refreshed, you will see references to Section 195, Rule 37BB, Form 15CA and Form 15CB. Those references are still meaningful for historical remittances, but the framework has been renumbered.

Practical reading. Treat this as a renaming exercise, not a policy change. The four-part structure of the declaration, the ₹5 lakh threshold that triggers the CA certificate, the treaty documentation requirements, and the consequences of short deduction all carry forward. What changes is which form your CA files and which section your board note cites. Remittances initiated before 1 April 2026 remain valid on the older forms, and those filings stay on the taxpayer’s record.

Also changed recently. Both the 2% and the 6% equalisation levies have been withdrawn, the 6% levy on online advertising with effect from 1 April 2025. Payments for digital advertising to non-residents are therefore assessed under the ordinary chargeability test rather than a separate levy. Guides written before 2025 will tell you otherwise; ignore them on this point.

2. Who has to withhold, and when

The obligation is broad. Any person — company, LLP, firm, individual, or trust — responsible for paying a non-resident or a foreign company any sum chargeable to tax in India must deduct tax at source. It applies whether or not the payer has any Indian tax liability of its own, and whether or not the payee has a PAN.

Two features catch out finance teams new to India:

There is no minimum threshold. Domestic TDS provisions have thresholds — ₹30,000 for professional fees, ₹2,40,000 for rent, and so on. The non-resident provision has none. A ₹4,000 payment to a foreign software vendor, if chargeable, attracts withholding.

The trigger is credit or payment, whichever is earlier. If you accrue the parent’s management fee in your March books and pay it in July, the withholding obligation arose in March. Companies that book year-end accruals to a foreign parent and only think about TDS when the remittance is processed are already in default by the time they call their CA.

Deposit deadline: the 7th of the following month. Tax deducted during April to February is deposited by the 7th of the next month. For deductions in March, the deadline is 30 April. Late deposit attracts interest at a higher monthly rate than late deduction.

3. The only question that matters: is it chargeable?

The statutory obligation bites only on a sum chargeable to tax in India. Everything else in this article is downstream of that single determination. Work through it as a ladder — stop at the first “no”.

Test 01 — Nature of income. Classify the payment. Royalty? Fees for technical services? Interest? Business profits? Capital gains? Reimbursement of cost? The classification drives everything, and a genuine reimbursement of a third-party cost with no mark-up is treated very differently from a service fee.

Test 02 — Source in India under domestic law. Does the domestic deeming provision bring this income within India’s tax net — for example, royalty or technical service fees paid by an Indian resident for use in an Indian business?

Test 03 — Treaty override. Does the applicable Double Taxation Avoidance Agreement give India taxing rights over this category at all? A number of treaties restrict or remove India’s right to tax services income absent a permanent establishment, and several contain a “make available” condition for technical services that a routine service will not satisfy.

Test 04 — Permanent establishment. If the treaty treats the income as business profits, India can tax it only if the foreign entity has a permanent establishment in India to which the profits are attributable.

Test 05 — Rate. Only once chargeability is established do you pick the rate: the lower of the domestic rate and the treaty rate, subject to the payee satisfying the treaty documentation conditions.

The “make available” clause. Several of India’s treaties — including with the United States, the United Kingdom, Singapore, the Netherlands, Canada and Portugal, among others — tax fees for technical or included services only where the service makes available technical knowledge, experience, skill, know-how or processes to the recipient, such that the recipient can apply them independently in future. A parent providing routine finance or HR support to its Indian subsidiary usually does not make anything available. This single clause is the most valuable and most under-used relief in intra-group service arrangements — but it must be documented in the service agreement and the scope of work, not asserted after the fact.

4. Payment types and their treatment

5. Domestic rates vs treaty rates

You apply the lower of the domestic rate and the treaty rate, provided the payee qualifies for treaty benefits and the documentation is in place. The domestic rates below are the base rates; the effective rate on a foreign company is higher once the applicable surcharge and health and education cess are added.

The PAN problem. Where the non-resident payee does not furnish a PAN, a higher withholding rate can be triggered. Relief is available where the payee furnishes prescribed alternative details — typically name, email, contact number, address in the country of residence, Tax Residency Certificate and tax identification number. Collect these at vendor onboarding, not at the point of remittance. Chasing a foreign parent’s tax department for a TRC on the day the payment is due is how companies end up deducting 20%+ on a payment that qualified for 10%.

6. Claiming DTAA relief: the document set

Treaty relief is not automatic. The Indian payer is the one who bears the consequence of a wrongly claimed treaty rate, so the payer must hold the documents before deducting. Four items form the standard file.

Form 10F is now electronic. It is filed on the Indian income tax e-filing portal, which means the non-resident payee generally needs a registration on that portal. For a foreign parent making a handful of payments a year this is administrative friction that takes weeks to resolve the first time. Start it well before the first remittance, not during it.

If the documents are missing. The safe course is to deduct at the domestic rate and let the non-resident claim treaty relief in its own Indian return by filing for a refund. It is commercially unwelcome and it locks up cash for a year, but it is far cheaper than a short-deduction assessment against the Indian company. Never apply a treaty rate on the strength of an email saying “we are a UK company”.

7. Permanent establishment: the quiet risk

Every no-PE declaration you accept is a statement you are relying on. If the foreign parent in fact has a permanent establishment in India, the consequences run far beyond withholding: the parent becomes taxable in India on the profits attributable to that PE, with return filing, assessment and potential penalty exposure.

Common ways a foreign parent creates Indian PE exposure without intending to:

• Seconded employees who remain on the parent’s payroll, report to the parent, and perform the parent’s business in India.
• A dependent agent — an Indian entity or person habitually concluding contracts, or playing the principal role leading to their conclusion, in the parent’s name.
• Use of the subsidiary’s premises by parent personnel over an extended period for the parent’s own business.
• Service PE thresholds — many treaties create a PE where the enterprise furnishes services in India through personnel for more than a specified number of days in a twelve-month period.
• A liaison office exceeding its permitted activities and effectively conducting business.

8. Grossing up under Section 195A

This catches out almost every company the first time. If your contract says the foreign parent is to receive a net amount “free of Indian taxes”, the tax must be grossed up: the taxable base is not the invoice amount but the amount which, after deducting tax, leaves the agreed net sum.

The practical lesson is contractual, not tax-technical: read the tax clause in the intercompany agreement before the first invoice. A “net of all taxes” clause drafted casually in a template licence agreement can add over 11% to the cost of every payment for the life of the agreement.

9. Form 145 and Form 146 explained

Form 145 is the remitter’s declaration filed on the income tax e-filing portal before the remittance. Form 146 is the Chartered Accountant’s certificate on taxability and the rate applied. The bank will not release the funds without a valid Form 145 acknowledgement number.

The Part D trap. Part D is for genuinely non-chargeable remittances. It is not a shortcut for chargeable payments you would rather not certify. Classifying a royalty or technical service fee as a capital-account item and reporting it in Part D, rather than Part C with a Form 146, is one of the most frequent triggers for departmental queries — and the mismatch is easy to spot because the bank’s purpose code, your books, and the payee’s own filings tell a different story. The exposure sits with the Indian company.

A separate exemption list covers specified categories of remittance for which no declaration is required at all — certain remittances by individuals under the Liberalised Remittance Scheme not requiring prior RBI approval, among others. Check whether your payment type is on that list before assuming a filing is needed.

10. The end-to-end remittance process

01. Classify the payment. Pull the underlying agreement, the invoice, and the scope of work. Determine the nature of income. Do not classify from the invoice narration alone — narrations are written by accounts teams, not tax teams.

02. Test chargeability. Apply the ladder in section 3. If not chargeable, document why in a short internal note; you will need it if queried two years later.

03. Collect the treaty file. TRC for the relevant period, electronically filed Form 10F, no-PE declaration, beneficial ownership declaration. Verify the TRC period actually covers your payment date.

04. Determine the rate. Lower of domestic and treaty, plus surcharge and cess where applicable on the domestic route. Document the comparison.

05. Deduct at credit or payment, whichever is earlier. This is a book entry date, not a bank date. Set your accruals process accordingly.

06. Obtain Form 146 where required. Give your CA the agreement, invoice, TRC, Form 10F, declarations and the computation.

07. File Form 145 on the portal. Select the correct Part. Enter the Form 146 acknowledgement where applicable. Save the acknowledgement number.

08. Deposit the tax. By the 7th of the following month (30 April for March deductions), using the correct challan and section code.

09. Give the acknowledgement to the bank. The authorised dealer bank processes the remittance against the Form 145 acknowledgement and the applicable purpose code.

10. File the quarterly return and issue the certificate. Report the deduction in Form 27Q and issue Form 16A to the payee so it can claim credit at home.

11. Lower or nil deduction certificates

Two routes exist where the standard withholding would over-tax the payee.

Payer’s application. The person responsible for paying can apply to the Assessing Officer for a determination of the appropriate proportion of the sum chargeable, and withhold only on that proportion. This is useful for mixed contracts — say, a single payment covering equipment supply, installation and training, where only part is chargeable.

Payee’s application. The non-resident can apply for a certificate authorising receipt at a lower or nil rate. This is the cleaner route where a foreign vendor has a recurring India revenue stream and a settled treaty position.

Both take time — plan on several weeks — and both require a properly reasoned application supported by the contracts and a computation. They are worth doing where the annual value is significant. For a one-off payment, the effort usually exceeds the benefit.

12. Form 27Q and the certificate trail

Form 16A, the withholding certificate, is issued to the payee within the prescribed period after the return is filed. This document is what lets the foreign parent claim foreign tax credit in its home jurisdiction. Failing to issue it does not save the Indian company anything and creates a real cost for the group — a common source of friction between Indian finance teams and group treasury.

13. What non-compliance costs

Who actually pays. Every one of these lands on the Indian entity. The foreign parent’s cash is already out of the door. In practice the Indian subsidiary’s directors — often including a resident director appointed to satisfy the Companies Act requirement — are the people who have to explain the demand to the group. Build the withholding review into the invoice approval workflow, not into the payment run.

14. Five real scenarios worked through

Scenario A — Management fee from a UK parent. The Indian subsidiary pays the UK parent a quarterly management fee for finance, HR and IT support. The India–UK treaty taxes fees for technical services only where the service makes available technical knowledge. Routine back-office support generally does not. The question is not the rate — it is whether the payment is chargeable at all. With a service agreement that describes the deliverables, a TRC, Form 10F and a no-PE declaration, a nil-withholding position supported by a Form 146 is often defensible. Without documentation of what the parent actually does, it is not.

Scenario B — Brand royalty to a Singapore parent. Royalty is squarely within India’s taxing rights under the treaty, at the treaty rate rather than the higher domestic rate, provided the treaty file is complete. This is a Part C filing with a Form 146. The additional workstreams are transfer pricing — is the royalty rate arm’s length, and is it benchmarked — and FEMA, since royalty outflow has its own regulatory conditions.

Scenario C — Reimbursement of a third-party software licence. The parent buys a group-wide licence and recharges the Indian entity its share at cost, with no mark-up. If this is a genuine pass-through, it may not be chargeable. The file must contain the third-party invoice, the allocation basis, and evidence that no mark-up or service element was added. A recharge with a 5% “administration” uplift is a different transaction and should not be reported as a pure reimbursement.

Scenario D — Interest on a shareholder loan. Interest is chargeable. Concessional treatment is available for certain foreign-currency borrowings subject to conditions. Layered on top: the loan itself must comply with the external commercial borrowing framework, including eligible lender, end-use and all-in-cost conditions, and there are separate periodic RBI reporting obligations. Tax and FEMA must be assessed together — a loan that is tax-efficient but non-compliant under FEMA is not a saving.

Scenario E — Seconded employees from a Japanese parent. Two engineers remain on the parent’s payroll while working for the Indian entity, which reimburses the salary cost. This is the highest-risk pattern in the list. Depending on who exercises control, who bears the risk, and what the secondment agreement says, the arrangement may be characterised as a service rendered by the parent — chargeable, and capable of creating a service PE. Fact patterns here have produced substantial Indian litigation. Take specific advice before the secondment starts, not after the first assessment notice.

15. Mistakes we see most often

1. Thinking about TDS at the payment run, not at the accrual. The obligation crystallised when you credited the parent’s account.
2. Applying a treaty rate without a TRC covering the payment date. An expired TRC is no TRC.
3. Reporting chargeable payments in Part D because a CA certificate felt like an unnecessary cost.
4. Accepting a no-PE declaration while the parent’s engineers have been in India for eight months.
5. Missing the gross-up on a net-of-tax contractual clause, then discovering the shortfall two years later.
6. Treating a marked-up recharge as a reimbursement.
7. Not filing Form 27Q even though the tax was correctly deducted and deposited — the daily late fee accrues regardless.
8. Never issuing Form 16A, so the group loses foreign tax credit it was entitled to.
9. Onboarding foreign vendors without collecting tax documentation, then discovering at the first invoice that nothing is available.
10. Using pre-2026 templates and section references in board notes and CA engagement letters after the Act changed.

16. Remittance checklist

☐ Underlying agreement located and the nature of income determined from the substance, not the invoice narration
☐ Chargeability assessed and the conclusion documented in an internal note
☐ Applicable treaty article identified; “make available” or beneficial ownership conditions tested where relevant
☐ TRC obtained and its validity period confirmed to cover the payment date
☐ Form 10F filed electronically by the payee
☐ No-PE and beneficial ownership declarations on file, dated
☐ PAN of the payee obtained, or the prescribed alternative details collected
☐ Rate comparison documented: domestic (with surcharge and cess) vs treaty
☐ Gross-up applied if the contract provides for a net-of-tax payment
☐ Form 146 obtained from the CA where the aggregate to that payee exceeds ₹5 lakh
☐ Correct Part of Form 145 selected and filed; acknowledgement saved
☐ Tax deposited by the 7th of the following month (30 April for March)
☐ Form 27Q filed for the quarter; Form 16A issued to the payee
☐ Transfer pricing documentation aligned where the payee is an associated enterprise

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Remitting to your parent or an overseas vendor? Delhi Legal Company handles the full outward remittance workflow for foreign-owned Indian companies — chargeability analysis, treaty documentation, Form 146 certification, Form 145 filing, quarterly Form 27Q and the FEMA reporting that runs alongside it.

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17. Frequently Asked Questions

Q1. Has Section 195 been replaced?

Short answer: Yes — it is now Section 393.

The Income-tax Act, 2025 took effect from 1 April 2026, and the provision dealing with withholding on payments to non-residents is now Section 393. The substantive obligation is carried forward unchanged: deduct at the time of credit or payment, whichever is earlier, on any sum chargeable to tax in India, with no threshold. Older documents and many bank templates still say Section 195 — both refer to the same obligation across their respective periods.

Q2. Have Form 15CA and 15CB been replaced by Form 145 and 146?

Short answer: Yes, for remittances from 1 April 2026.

Form 15CA has been renumbered as Form 145, and Form 15CB as Form 146, under the Income-tax Rules, 2026. The four-part structure of the declaration and the ₹5 lakh threshold for the CA certificate are unchanged. Filings made on 15CA/15CB for remittances before that date remain valid and stay on the taxpayer’s record.

Q3. Is there a minimum amount below which no TDS applies on foreign payments?

Short answer: No. There is no threshold at all.

Unlike domestic TDS provisions — which have thresholds like ₹30,000 for professional fees — the non-resident provision has none. The obligation applies from the first rupee of a chargeable sum. The ₹5 lakh figure governs something entirely different: whether a Chartered Accountant’s certificate on Form 146 is required with your declaration.

Q4. When exactly does the withholding obligation arise?

Short answer: At credit or payment — whichever comes first.

Crediting a “suspense account” or any other named account does not avoid it. This is the point most finance teams get wrong: year-end accruals of management fees or royalties to a foreign parent trigger the obligation in the month of accrual, not the month the money actually leaves the bank.

Q5. Can I apply the DTAA rate without a Tax Residency Certificate?

Short answer: No — and the risk sits with you, not the payee.

A valid TRC covering the relevant period, together with an electronically filed Form 10F and a no-PE declaration, is the standard evidentiary basis for applying a treaty rate. Without it, the safe course is to deduct at the domestic rate and let the non-resident claim relief through its own Indian return. If a treaty rate is applied and later disallowed, the differential tax and interest fall on the Indian payer.

Q6. What is the “make available” condition, and why does it matter so much?

Short answer: It can take a payment out of India’s tax net entirely — not just reduce the rate.

Several Indian treaties tax fees for technical or included services only where the service transfers technical knowledge, skill or know-how to the recipient in a way that lets the recipient apply it independently in future. Routine finance, HR or IT support from a parent to its subsidiary usually does not make anything available. This is the most valuable and most under-used relief in intra-group arrangements — but only if the service agreement and scope of work actually support it.

Q7. Is a cost reimbursement to my parent chargeable to tax in India?

Short answer: Often not — if it is a genuine pass-through with zero mark-up.

The position depends entirely on documentation: the third-party invoice, the allocation basis, and evidence that nothing was added. A recharge carrying even a small “administration” uplift is a service fee, not a reimbursement, and must not be reported as one.

Q8. What is grossing up, and when does it apply?

Short answer: When your contract promises a payment “net of Indian taxes”.

The tax borne by the payer is itself treated as income of the payee, so the taxable base must be grossed up. At a 10% rate, a ₹10,00,000 net payment becomes a grossed-up base of ₹11,11,111, with ₹1,11,111 of tax. That is an 11% cost increase on every payment for the life of the agreement. Check the tax clause in every intercompany contract before the first invoice.

Q9. Which part of Form 145 do I file?

Short answer: It depends on chargeability and whether you cross ₹5 lakh.

Q10. What happens if I do not deduct tax on a payment to my foreign parent?

Short answer: Your Indian company becomes liable for the tax itself.

The company is treated as an assessee in default and owes the tax plus interest from the date it was deductible. On top of that, a proportion of the expenditure can be disallowed in computing the Indian company’s own taxable income — generally restored in the year the tax is eventually paid. Prolonged failure to deposit tax that was actually deducted also carries prosecution exposure.

Q11. Do I need a CA certificate for every foreign remittance?

Short answer: No — only for chargeable payments above ₹5 lakh.

Form 146 is required only where the remittance is chargeable to tax, the aggregate to that payee in the tax year exceeds ₹5 lakh, and no Assessing Officer certificate for lower or nil deduction has been obtained. Non-chargeable remittances and smaller chargeable ones are reported on the appropriate Part of Form 145 without a certificate.

Q12. Are payments for foreign digital advertising still subject to equalisation levy?

Short answer: No — both levies have been withdrawn.

The 2% levy and the 6% levy on online advertising have been withdrawn, the latter with effect from 1 April 2025. Such payments are now assessed under the ordinary chargeability test for payments to non-residents. Any article still describing an equalisation levy on advertising is out of date.

Q13. How long does it take to get Form 146 from a Chartered Accountant?

Short answer: One to two working days — if your documents are ready.

Royalty, fees for technical services and capital gains cases involving treaty analysis and a PE assessment usually take three to five working days. The bottleneck is almost never the CA — it is collecting the TRC from the foreign parent and getting Form 10F filed on the Indian portal.

Q14. Will the bank release the remittance without Form 145?

Short answer: No. The bank cannot process it.

The authorised dealer bank requires a valid Form 145 acknowledgement number, along with the appropriate purpose code and supporting documents, before releasing an outward remittance. This is exactly why the tax workflow must start when the invoice is approved — not when treasury schedules the payment run.