Section 195 TDS, when you're the foreign payer.

Section 195 Income Tax Act: any person (whether resident or non-resident) making payment to a non-resident that is 'chargeable to tax in India' must deduct TDS. Note: the payer can also be a non-resident — so foreign company paying Indian vendor could trigger Section 195.

But wait — Section 195 is about payment to a non-resident. If you're paying an Indian resident (Indian individual CA / Indian company), Section 195 does NOT apply. Sections 194C / 194J / 194A would apply if the payer has an India tax presence (PE / fixed place / branch).

So the question splits:

• Foreign payer, non-resident payee: Section 195 applies IF the income is India-sourced (Section 9) or deemed to accrue in India.
• Foreign payer, resident payee (Indian citizen / Indian company): Sections 194C / 194J etc. may apply IF foreign payer has an India tax presence. If foreign payer has NO India presence — usually no TDS obligation on foreign payer; Indian resident pays own tax on receipt.

Most foreign-payer-to-Indian-vendor scenarios are the second case: no TDS obligation on foreign payer. Indian vendor files own ITR and pays own tax.

Many foreign companies pay their Indian vendors (freelance developer in Bangalore, consultant in Mumbai, agency in Delhi) and ask 'should we withhold Indian tax?'. If the Indian vendor is an Indian resident (Indian individual or Indian company), the standard answer is No. The foreign payer has no India TDS obligation (because the foreign payer has no India tax presence that would make Sections 194C/194J/194A applicable).

The Indian vendor:

• Receives gross payment.
• Reports it as income in their Indian ITR.
• Pays own income tax (slab rate for individuals, 25% / 22% for companies).
• Charges GST if their turnover crosses threshold (zero-rated if export of service under GST rules).

Confirming: foreign payer's obligation is to pay the agreed invoice amount. No India TDS. No Indian compliance obligation.

Foreign payer DOES have Section 195 obligation when:

• Payee is a non-resident entity (not an Indian resident) and income is India-sourced. Example: US company pays UK consultant for work done in India — UK consultant is non-resident; income may be India-sourced; Section 195 applies.
• Foreign payer has an Indian branch / fixed place / PE, and the payment is made through / attributable to that India presence. Section 195 then applies.
• Payment is treated as 'representative assessee' matter under Section 160: if foreign payer has an Indian representative (agent, broker, Indian subsidiary), the representative can be assessed as 'representative assessee' for the foreign company's India-sourced income. Section 195 obligations shift to the Indian representative.

For a US SaaS company paying an Indian individual CA for consulting work: Section 195 does not apply (payee is Indian resident, payer has no India presence).

For an Indian subsidiary of a US company paying a UK consultant: Section 195 does apply (payee is non-resident; Indian subsidiary is the payer; payment chargeable to tax in India).

Case 1: US company pays Indian freelancer USD 10K/month for development work

• Payee: Indian individual (resident).
• Foreign payer: no India presence.
• Section 195: not applicable.
• Action: pay full USD 10K via wire / Deel / Wise. Indian freelancer handles own ITR + GST.

Case 2: UK company pays Indian company (Pvt Ltd) INR 50 lakh for development project

• Payee: Indian company (resident).
• Foreign payer: no India presence.
• Section 195: not applicable.
• Action: pay full INR 50 lakh. Indian company handles own corporate tax + GST (export of service under GST may apply → zero-rated with LUT bond).

Case 3: Indian subsidiary (of German parent) pays German consultant EUR 20K for technical services

• Payee: German resident (non-resident of India).
• Indian subsidiary: the payer; has India tax presence.
• Section 195: applies.
• Chargeability: Fees for Technical Services (FTS) under Section 115A → chargeable in India at 20% default; 10% under India-Germany DTAA with TRC + Form 10F.
• Form 15CA + Form 15CB mandatory before remittance.
• Indian subsidiary deducts 10% TDS, deposits by 7th of next month, files Form 27Q quarterly.

• Pay Indian residents gross (full invoice amount), no India TDS withholding. If you're a US company paying an Indian freelancer in Bangalore, pay USD X; the Indian freelancer handles their own India tax.
• Insist on invoice + PAN: your Indian vendor should provide a GST-compliant invoice with their PAN. Keeps your audit trail clean.
• GST awareness: Indian vendor's invoice may show GST at 18% (if their turnover crosses threshold AND they bill in INR) or zero (if export of service under GST rules). Either way, foreign payer pays the invoice; GST is Indian vendor's obligation.
• If YOU have an Indian subsidiary: that subsidiary paying any non-resident vendor → Section 195 applies → 15CA + 15CB protocol. See 15CA/CB guide.
• Beneficial Ownership + Treaty Shopping risk: avoid routing payment through third-country intermediaries just to reduce TDS; India has GAAR + treaty-shopping provisions.
• Doubt → written advisor opinion: a CA opinion letter costs little and clarifies the position; much cheaper than mistaken TDS obligations.

Last updated: 2026-10-13.