Key takeaways
  • Fees paid to an overseas individual or firm for services are fees for technical services under the Income-tax Act, 2025 (20% plus surcharge and cess) unless a treaty reclassifies them as business profits or independent personal services taxable only through a PE or fixed base.
  • Treaty relief needs the contractor's Tax Residency Certificate and Form 41; many individual freelancers cannot or will not provide them, in which case tax must be withheld at the domestic rate or the fee grossed up.
  • Form 145 is filed for every remittance; Form 146 is needed once taxable payments to that contractor exceed ₹5 lakh in the tax year without a section 395 certificate.
  • GST at 18% is payable by the Indian company under reverse charge as an import of services and is creditable; the bank remits under a services purpose code against Form A2.

Step 1 — classify the service

Design, development, consulting, content, marketing, legal and most knowledge work paid to a non-resident fall within fees for technical services under section 9 of the Income-tax Act, 2025 ("managerial, technical or consultancy services"), deemed to accrue in India because the payer is Indian, and taxed at 20% plus surcharge and cess on the gross amount under section 207, with withholding under section 393(2). Pure purchase of goods, and services that fall outside "technical" (for example, some translation or clerical work), are the limited exceptions.

Step 2 — apply the treaty, if the contractor can prove residence

For an individual contractor, the treaty's independent personal services article (where it exists — US, UK and many others) taxes the income in India only if the individual has a fixed base in India or stays here beyond a day threshold (typically 90 or 183 days). For a contractor company, the fees for technical services article applies: under make-available treaties (US, UK, Singapore, Canada, Netherlands), routine services are business profits, taxable only through a PE; under broad-FTS treaties (Germany, Japan), 10%. To apply any of this, the contractor must provide a Tax Residency Certificate and file Form 41 (old 10F) on the Indian e-filing portal — a hurdle for many freelancers. Without the documents, withhold at 20% plus surcharge and cess (Rule 217 permits the treaty rate without PAN only if the TRC and other particulars are furnished).

Step 3 — withhold, deposit and file the forms

  • Deduct at the earlier of credit or payment; convert at the SBI TT buying rate on the deduction date; deposit by the 7th of the next month; report in the quarterly non-resident TDS statement; issue the certificate.
  • If the contract is "net of Indian taxes", gross up.
  • Form 145 before each remittance: Part A if payments to the contractor in the tax year are ≤ ₹5 lakh; Part C (after Form 146) if above ₹5 lakh; Part B if a section 395 certificate exists. Part D only if the payment is not chargeable under the Act at all — rarely the case for services.
  • Keep the agreement, invoices, TRC, Form 41 and the Form 146 certificate; an expense on which tax was not withheld is disallowed until it is.

Step 4 — GST

The service is an import of services: the Indian company pays IGST at 18% under reverse charge (section 5(3) IGST Act; Notification 10/2017), issues a self-invoice within 30 days, and claims the tax as input tax credit if the service is used for business. The liability arises on the earlier of payment or the 61st day from the contractor's invoice. Payment platforms do not discharge this on the company's behalf.

Step 5 — pay through the bank correctly

Remit through the company's bank on Form A2 with the invoice, Forms 145/146 acknowledgements and the appropriate purpose code (for example S0802 software consultancy, S1006 business and management consultancy, S1101 for some professional services — the bank's code list governs). Payment-platform and card payments are still foreign remittances for income-tax and FEMA purposes; the forms and the withholding are the payer's responsibility whatever the channel.

Contractor or employee?

A long-term, full-time "contractor" abroad who works exclusively for the Indian company under its direction may be an employee for the foreign country's labour and social-security law, exposing the Indian company to registration, payroll tax and permanent-establishment questions there. The Indian tax treatment (FTS/business profits) does not change the foreign characterisation. Groups with more than a handful of such people use an employer-of-record or set up locally.

Frequently asked questions

What is the TDS rate on fees paid to a foreign freelancer?

20% plus surcharge and cess under section 207 of the Income-tax Act, 2025 as fees for technical services, unless a treaty applies and the freelancer provides a TRC and Form 41 — in which case independent personal services or business profits articles usually give nil withholding absent a fixed base or PE in India.

Is Form 145 required for small payments to foreign contractors?

Yes. Form 145 is filed before every remittance that is chargeable to tax; Part A applies where payments to that contractor in the tax year do not exceed ₹5 lakh. Form 146 (CA certificate) is needed above ₹5 lakh without a section 395 certificate.

Do I pay GST on a foreign freelancer's invoice?

Yes. It is an import of services; the Indian company pays IGST at 18% under reverse charge and claims input tax credit if used for business.

What if the contractor refuses to provide a TRC?

Withhold at the domestic rate (20% plus surcharge and cess) or gross up the fee. The treaty rate cannot be applied without the TRC and Form 41 particulars.

Does paying through a payments platform or card remove the TDS and forms obligation?

No. The Indian payer remains responsible for withholding, Forms 145/146 and GST reverse charge regardless of the payment channel.

Can we treat the fee as a reimbursement to avoid TDS?

Only a genuine cost-to-cost reimbursement with no service element is outside the charge. A fee for work done is fees for technical services however it is labelled.

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.

Last reviewed on 1 November 2026 by Monal Agarwal, 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.