Insights · Income-tax Act 2025
Section 393: TDS on Payments to Non-Residents Under the Income-tax Act, 2025
Section 195 is now part of the table in section 393(2). How the new structure works, what stays the same, how to work out the rate, and what to fix in contracts written for the old Act.
Section 393 of the Income-tax Act, 2025 is the single provision for tax deduction at source on everything other than salary. Payments to non-residents, which used to sit in section 195 and a handful of special sections, are now in the table under section 393(2). It applies to amounts paid or credited on or after 1 April 2026. The rates and the core principle are unchanged: tax is deducted only on sums chargeable to tax in India, at the rates in force, at the earlier of credit or payment.
Where things moved
- Section 195 and the special non-resident TDS sections: now section 393(2)
- Resident TDS sections 193 to 194T: now section 393(1)
- Lower or nil deduction certificate, section 197: now section 395
- PAN, deposit, statements and remittance reporting: now section 397
- Consequences of not deducting, section 201: now section 398
- Treaty relief, section 90: now section 159
- Forms 15CA and 15CB: now Forms 145 and 146
How section 393 is organised
The old Act had more than thirty separate TDS sections. The 2025 Act replaces them with tables. Section 392 covers salary. Section 393(1) lists payments to residents. Section 393(2) lists payments to non-residents, including interest on foreign borrowings, income of non-resident sportspersons and entertainers, income from units and securities, and a residual entry for any other sum chargeable to tax, which is the old section 195. Section 393(3) covers payments where the payee may be anyone, such as lottery and online game winnings. Section 394 deals with tax collection at source. The full text is in the Income-tax Act, 2025 as published by the department.
What has not changed
- Chargeability comes first. Tax is deducted only if the sum is chargeable to tax in India in the hands of the non-resident. A payment that is not taxable here, under domestic law or under the treaty, does not attract deduction.
- No threshold. Unlike most resident payments, there is no minimum amount for the residual non-resident entry.
- Every payer is covered. Individuals, companies, and even non-residents paying other non-residents for Indian-source income.
- Rates in force. The rate is the one in the Finance Act or the treaty rate, whichever is more beneficial to the payee.
- Timing. Earlier of credit to the payee’s account, including year-end provisions to an identified payee, and actual payment.
Working out the rate
| Step | Question |
|---|---|
| 1 | What is the payment for? Royalty, technical fees, interest, dividend, business income, capital gains, performance income. |
| 2 | Is it taxable under Indian domestic law, including the deemed accrual rules? |
| 3 | Does a treaty apply, and has the payee supplied a tax residency certificate and the treaty information form? |
| 4 | Which is lower: the domestic rate with surcharge and cess, or the treaty rate? Surcharge and cess are not added to a treaty rate. |
| 5 | Does the payee have a PAN, or has it supplied the alternative details the rules allow? If not, a higher rate can apply. |
| 6 | Is the contract net of tax? If so, gross up. |
Common domestic rates for non-residents include 20% on royalties and fees for technical services, 20% on dividends, and 35% on other income of a foreign company, each plus surcharge and cess. Treaty rates are often 10% or 15% for royalties, technical fees and dividends.
When only part of the payment is taxable
If the payer believes that only a portion of the payment is income chargeable in India, for example where a foreign contractor performs part of the work offshore, the safe course is to obtain a determination from the Assessing Officer. The payee can also apply for a certificate for deduction at a lower or nil rate under section 395. Both take time, so they should be started well before the first payment date. Without a certificate, a payer that deducts on a self-assessed portion carries the risk if the officer later disagrees.
After the deduction
- Deposit the tax by the 7th of the following month, or by 30 April for deductions made in March.
- File Form 145, supported by a Form 146 certificate where needed, before the remittance. See Form 145 and Form 146.
- File the quarterly TDS statement for non-resident payments and issue the TDS certificate.
- Keep the treaty documents, agreement and working of the rate on file for each payee.
If tax is not deducted
Under section 398 the payer is treated as an assessee in default for the tax. Interest runs at 1% a month from the date the tax was deductible to the date it is deducted, and at 1.5% a month from deduction to deposit. A penalty equal to the tax can be levied. Separately, the expense can be disallowed in computing the payer’s business income until the tax is deducted and paid. On a large royalty, management fee or artist payment, the combined cost often exceeds the tax that should have been withheld.
Transition points
- A credit or payment made up to 31 March 2026 is governed by the 1961 Act, even if the return or statement is filed later.
- Lower deduction certificates issued under the old Act for a period running past 1 April 2026 should be checked against the department’s transition guidance before relying on them.
- Update section and form references in agreements, tax clauses, board notes and bank mandates. A tax indemnity that refers only to section 195 is poorly drafted for a contract running into 2027.
Our international taxation team reviews recurring foreign payments against the new tables and treaty positions, and represents payers in default proceedings through our regulatory representation practice.