How does withholding tax on payments to non-residents work under section 393, and when are Forms 145 and 146 (formerly 15CA/15CB) required?

Key facts

Step 1 — is the payment chargeable to tax in India?

Withholding under section 393(2) applies only to sums chargeable under the Act. The analysis runs through section 9 of the Income-tax Act, 2025 (income deemed to accrue or arise in India — business connection, royalty, fees for technical services, interest, capital gains on Indian assets) and then through the applicable tax treaty under section 159 (old section 90), which can narrow the charge. Typical outcomes:

Payment	Under the Act	Typical treaty position
Royalty for use of IP or software (where it is a royalty)	Taxable; 20% + surcharge + cess (s. 207)	10%–15% depending on treaty; some software payments are business profits (Engineering Analysis, 2021)
Fees for technical services / included services	Taxable; 20% + surcharge + cess	Nil if the treaty's "make available" condition is not met (US, UK, Singapore and others); otherwise 10%–15%
Management / administrative fees	Usually FTS under the Act (managerial)	Often business profits — not taxable without a PE — under treaties with a narrow FTS article
Interest on loans / ECB	Taxable; 20% (or rate in force)	10%–15%
Dividend	Taxable; 20% + surcharge + cess	5%–15%
Import of goods (pure purchase)	Not chargeable (no business connection)	—
Reimbursement at cost without markup	Generally not chargeable	—
Services rendered and used wholly outside India	May be outside s. 9 depending on nature	—

A treaty rate is a ceiling: surcharge and cess are not added to it. A rate under the Act carries surcharge (for foreign companies, 2% or 5% by income slab) and 4% health and education cess.

Step 2 — what the payee must give you for treaty relief

• Tax Residency Certificate (TRC) from the payee's home tax authority, covering the period of payment — a condition under section 159 (old section 90(4)).
• Form 41 (old Form 10F) — the payee's electronic declaration of status, nationality, TIN, period of residence and address, filed on the Indian e-filing portal (old section 90(5); now section 159(8)).
• No-PE declaration on the payee's letterhead for the year, where business-profits treatment is relied on.
• Beneficial ownership confirmation for dividends, interest and royalties, and awareness of the principal-purpose test under the MLI for the treaty concerned.

Where the payee has no Indian PAN, Rule 217 of the Income-tax Rules, 2026 (old Rule 37BC) allows the treaty rate to be applied without the higher-rate default, provided the payee's name, email, contact number, address in its country of residence, TIN and TRC are on file.

Step 3 — which part of Form 145, and is Form 146 needed?

Form 145 is the remitter's own declaration, filed online on the e-filing portal before the bank remits. The part depends on two tests: is the remittance chargeable to tax, and does the aggregate of such remittances to this payee in the tax year exceed ₹5 lakh?

Part	When	CA certificate?
A	Chargeable to tax; aggregate payments to the payee in the tax year do not exceed ₹5,00,000	No
B	Chargeable; exceeds ₹5,00,000; a certificate or order under section 395(1) or (2) has been obtained from the Assessing Officer	No — AO certificate instead
C	Chargeable; exceeds ₹5,00,000; no AO certificate	Yes — Form 146, filed first; Part C is pre-filled from its acknowledgement
D	Not chargeable to tax under the Act (other than payments in the no-form list)	No

Form 146 is the accountant's certificate. A Chartered Accountant examines the agreement, invoice, TRC, Form 41 and no-PE declaration, states the nature of the remittance, whether and under which provision it is chargeable, the treaty article relied on, the rate, whether grossing-up applies, the TDS in foreign currency and rupees, and certifies with a UDIN and digital signature. The bank will not process a Part C remittance without the Form 146 acknowledgement number.

Step 4 — deduct, deposit, report

Tax is deducted at credit or payment, whichever is earlier, converted at the SBI telegraphic transfer buying rate on the date the tax is required to be deducted. It is deposited by the 7th of the following month (30 April for March) and reported in the quarterly TDS statement for non-residents, with a TDS certificate issued to the payee. If the contract requires the payee to receive the amount net of Indian tax, the payment must be grossed up and tax computed on the grossed-up amount. Failure to deduct leads to disallowance of the expense in the payer's computation, interest and penalty, and the payer being treated as an assessee in default.

Lower or nil deduction — section 395

Where the payee's actual Indian tax liability is lower than the withholding rate (for example, a non-resident seller of shares whose capital gain is a fraction of the sale price, or a payee with treaty protection the bank will not accept without an order), either the payee or the payer may apply to the Assessing Officer under section 395 (old sections 197 and 195(2)/(3)) in Form 128 (old Form 13) for a certificate authorising deduction at a lower or nil rate. The certificate is valid for the tax year and the payee named, and supports Form 145 Part B.

Worked example

An Indian subsidiary pays its US parent a quarterly management fee of USD 40,000 (₹33.6 lakh at ₹84) for finance, HR and legal support provided from the US by the parent's own staff, with no personnel in India.

1. Chargeability under the Act: managerial and consultancy services are fees for technical services under section 9; taxable at 20% plus surcharge and cess under section 207 — about 21.84% for a foreign company at this income level.
2. Treaty: Article 12 of the India–US treaty taxes "fees for included services" only where technical knowledge, skill or process is made available to the recipient. Routine finance and HR support does not make technology available. The fee is business profits under Article 7, not taxable in India absent a PE. No-PE declaration, TRC and Form 41 obtained.
3. Rate: nil under the treaty. Documentation supports it.
4. Forms: the remittance is chargeable under the Act but relieved by treaty — it is still a remittance "chargeable to tax" for Rule 220 purposes. Aggregate payments to the parent exceed ₹5 lakh in the year and there is no section 395 certificate, so Form 146 is obtained (certifying nil deduction under Article 7/12) and Form 145 Part C is filed before each quarterly remittance.
5. GST: separately, IGST at 18% (₹6.05 lakh) under reverse charge, claimed as ITC.
6. Transfer pricing: the fee is an international transaction — benefit test and benchmarking documented; reported in Form 48.

Had the service been software support that trained the Indian team to maintain the parent's platform, the make-available test might be met: 15% withholding under Article 12 on ₹33.6 lakh = ₹5.04 lakh per quarter, with no surcharge or cess.

Common mistakes we see

• Filing Form 145 Part D ('not chargeable') for a payment that is chargeable under the Act but relieved by treaty. Treaty-relieved payments above ₹5 lakh go through Form 146 and Part C with the relief certified.
• Applying the treaty rate without a current TRC and Form 41 on file, then being unable to produce them in a TDS audit.
• Adding surcharge and cess to a treaty rate.
• Converting at the invoice-date rate instead of the SBI TT buying rate on the date of deduction.
• Netting the parent's management fee against the subsidiary's service receivable and remitting the difference — withholding and Forms 145/146 apply to the gross fee.
• Treating the ₹5 lakh threshold as per-remittance rather than aggregate per payee per tax year.
• Assuming the bank's acceptance of the form is a tax clearance. The remitter and the certifying CA carry the responsibility.

Frequently asked questions

Sources

Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.

• Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
• FAQs and guidance notes on forms under the Income-tax Rules, 2026 — Income Tax Department
• Income-tax e-filing portal — Forms 48, 49, 128, 145 and 146
• Double Taxation Avoidance Agreements — Income Tax Department
• e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications

Last reviewed on 1 November 2026 by Vidushi Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.

Related reading

• How are royalty and fees for technical services taxed in India — domestic law versus DTAA, and what are TRC, Form 41 and the no-PE declaration?
• How should management fees, cost recharges and shareholder costs between group entities be handled for Indian tax?
• How are dividends, interest and other outward remittances by an Indian subsidiary to its foreign parent taxed and reported?
• When must an Indian company pay GST under reverse charge on services imported from its foreign parent or vendors?
• Which section of the Income-tax Act, 2025 replaced each 1961 Act transfer pricing section?
• All revenue-account remittances pages in the hub
• Cross-Border Tax & Transfer Pricing — what the firm does