Withholding Tax on Cross-Border Payments: Rates and Treaty Relief
India withholds tax on cross-border payments like royalties, fees for technical services, and interest, at rates that a valid tax treaty can often reduce significantly if the paperwork is in order.
Payments from an Indian entity to a foreign recipient, royalties, fees for technical services, interest, dividends, are subject to withholding tax (TDS) under Indian domestic law, at rates set under the Income Tax Act. Where a Double Taxation Avoidance Agreement (DTAA) exists between India and the recipient's country of residence, the treaty rate, often lower than the domestic rate, can generally be applied instead.
Claiming the treaty rate isn't automatic, it requires the foreign recipient to furnish a Tax Residency Certificate (TRC) from their home tax authority and, in most cases, additional prescribed forms (Form 10F, and a no-PE declaration), missing this documentation means the Indian payer is required to withhold at the higher domestic rate by default, regardless of what the treaty technically allows.
For recurring cross-border payments, intercompany royalties or service fees, it's worth setting up the TRC and supporting documentation as a standing annual process rather than scrambling for it at each payment, since TRCs typically need annual renewal and missing one mid-year forces the higher withholding rate until it's resolved.