TDS on overseas payments: 15CA/CB without the panic

Section 195 of the Income-tax Act requires any person responsible for paying to a non-resident any sum chargeable to tax in India to deduct tax at source at the applicable rate. The Indian company paying the foreign vendor, the Indian subsidiary paying royalty to the foreign parent, the Indian fund paying carry to a foreign GP — all of them sit inside 195.

The procedural shell is Form 15CA and Form 15CB. Useful to understand the categories, but more useful to understand what they actually do and what the bank actually checks.

The four 15CA categories

Form 15CA has four parts, mapped to the size and nature of the remittance.

Part A. Aggregate remittances during the financial year to a single party do not exceed ₹5 lakh. Self-declaration by the remitter; no CA certificate needed.

Part B. Remittances exceeding ₹5 lakh in aggregate but where an order or certificate has been obtained from the assessing officer under Section 195(2) or 195(3). The AO order is the basis; 15CA Part B is the disclosure.

Part C. Remittances exceeding ₹5 lakh requiring a CA certificate in Form 15CB. This is the most common category for routine cross-border payments.

Part D. Remittances that are not chargeable to tax under the Income-tax Act. The remitter declares the non-chargeability; no 15CB needed. This is where misuse happens — remitters claim Part D for payments that should be Part C, hoping the bank does not push back.

The bank's authorised dealer compliance team is the last line of defence. They will reject the inward remittance if the 15CA/15CB does not match the nature of payment. Most banks now run an internal scrubber against the RBI's list of purpose codes (S0001 to S1801) and the 15CA category. Mismatches get returned.

Where the rate gets wrong

The Form 15CB is where the chartered accountant certifies the rate of TDS. Four payment types account for most of the disputes.

Software royalties

The default position under Section 9(1)(vi) read with the Explanation: payments for software constitute royalty, taxed at 10% under Section 115A (gross basis, no expense deduction).

The DTAA position: most DTAAs (India-US, India-UK, India-Germany, India-Singapore) define royalty more narrowly. Payments for off-the-shelf software (no customisation, no IP transfer) often fall outside royalty under the DTAA and become business profits — taxable only if the non-resident has a PE in India.

The Supreme Court in Engineering Analysis Centre of Excellence (2021) clarified the DTAA position favourably for taxpayers. But: this applies only if the recipient can claim the DTAA, which requires the TRC and Form 10F. Without those, the default 10% applies.

Practical: get the TRC and 10F. Apply the DTAA. Drop the rate from 10% to nil for off-the-shelf software in most major treaty jurisdictions. The annual saving on a ₹2 crore software licence bill: ₹20 lakh.

Professional fees versus FTS

Fees for Technical Services (FTS) under Section 9(1)(vii) is taxed at 10% gross. Professional fees that do not qualify as FTS may be business profits — exempt absent a PE.

The distinction: FTS requires the service to make available technical knowledge, skill, experience to the recipient. The India-US, India-UK and India-Singapore DTAAs all include the 'make available' clause. A consultant who runs a study and hands over a report has not made available technical knowledge in the same way a trainer who teaches engineers a new methodology has.

The CA certifying 15CB needs to know this. We have seen 15CB after 15CB applying 10% FTS on what is plainly a professional service under the DTAA's make-available standard.

Dividend

Foreign parent receives dividend from Indian subsidiary. Section 115A: 20% gross. India-US treaty: 15% if shareholding is below 10%, 25% otherwise (paradoxically higher than the domestic rate in some cases — beneficial provision means apply the lower of the two). India-Singapore: 15%. India-Mauritius: 5% if shareholding is at least 10%.

Practical: check the specific DTAA rate, apply the more beneficial of the DTAA or domestic rate (Section 90(2)), document the analysis on the 15CB.

Capital gains

Capital gains on sale of shares of an Indian company by a non-resident. Section 9(1)(i) read with Section 112. The DTAA position varies wildly — India-Mauritius (post-2017 protocol) taxes gains in India for shares acquired after 1 April 2017; India-Singapore similar; India-Netherlands historically exempt though the MLI's Principal Purpose Test now applies.

The 15CA/15CB on share-sale remittances is one of the highest-stakes filings. Get it wrong and the deal closing gets stuck at the bank. We typically run a separate Section 197 lower-deduction certificate application with the AO before the closing, getting a 5% or nil certificate so the buyer can remit cleanly.

The TRC and Form 10F

Section 90(4) requires the non-resident to furnish the Tax Residency Certificate (TRC) issued by the foreign country to claim DTAA benefit. Section 90(5) requires Form 10F with specific information that is not always in the TRC.

Until 2022, Form 10F could be filed in physical form. CBDT moved it to electronic filing on the e-filing portal in July 2022. The non-resident needs a PAN to e-file. For non-residents without a PAN, CBDT subsequently permitted manual filing through 2024, though the position is now that an e-filing-eligible non-resident must file electronically.

Practical: build a vendor onboarding checklist. Every new foreign vendor must provide the TRC and Form 10F before the first invoice is processed. If they cannot or will not, the TDS rate defaults to the higher of the Income-tax Act rate or 20% (Section 206AA if no PAN).

The Section 197 lower-deduction route

For recurring or large remittances, the remitter can apply under Section 197 for a certificate authorising deduction at a lower rate or nil. The application is made by the payer or payee in Form 13. The AO has 30 days (post-Faceless Assessment changes the timeline somewhat).

We use Section 197 routinely for: (a) share buyback consideration to non-residents, (b) large royalty streams where the DTAA position is favourable but documentation needs validation, (c) M&A closings with non-resident sellers.

What we do at engagement

Three controls. First, every cross-border payment over ₹5 lakh runs through a 4-eye check: the operating team, the finance team, the CA, and us on the substance. Second, an annual vendor file refresh — every foreign vendor's TRC and 10F are revalidated in April for the new year. Third, a quarterly reconciliation of TDS deducted vs payment categorisation vs DTAA position vs return filing.

The Section 206AA hammer

Where the non-resident does not have an Indian PAN, Section 206AA mandates the higher of (a) the rate specified in the Income-tax Act, (b) the rates in force, or (c) 20%. The DTAA's beneficial rate cannot be used without a PAN.

The Engineering Analysis judgment and subsequent appellate decisions softened the position somewhat — where the non-resident provides the TRC and Form 10F, and the DTAA rate applies, the 20% floor under 206AA does not override the DTAA. But the practical position at the bank counter and during scrutiny is more conservative. Authorised dealers regularly insist on 20% TDS where the recipient has no PAN, even with a valid TRC.

Get the PAN. Foreign vendors can apply for a PAN through Form 49AA, generally a 3-4 week process. The professional fee for the PAN application is modest. The withholding saving on a $500,000 annual vendor relationship: $50,000 a year minimum.

Software-as-a-Service: the new battleground

SaaS payments to non-resident vendors (Salesforce, Slack, HubSpot, AWS, Google Workspace) sit awkwardly between software royalty, FTS and business profits. Pre-Engineering Analysis (2021), most CAs certified these at 10% royalty. Post the judgment, the better view is that off-the-shelf SaaS — no IP transfer, no source code access, no customisation — is business profits and exempt absent a PE.

Our default position: SaaS payments to non-resident vendors with proper TRC and 10F, business profits, nil withholding. We document the analysis on the 15CB. If the assessing officer challenges, the Engineering Analysis precedent and subsequent Tribunal decisions stand behind us.

Where the SaaS includes customisation, on-premise installation or source code access, the analysis flips — royalty applies, 10% withholding under the DTAA or Section 115A as applicable.

The 15CA/15CB process is a form-filling exercise on the surface. The substance — the chargeability analysis, the DTAA application, the TRC validity — is where the money is made or lost. The form is the easy part.

If the bank pushes back, escalate to the authorised dealer compliance team in writing. They have a duty to honour valid 15CA/15CB pairs and they know it. If the AO pushes back during scrutiny, the 15CB certificate is not a defence — it is a document. The defence is the underlying analysis.