Indian companies paying royalties or fees for technical services (FTS) to non-resident companies must deduct TDS at 20% + surcharge + cess under Section 115A of the Direct Tax Code 2025. If the foreign company holds a valid Tax Residency Certificate (TRC), Form 10F, No PE Declaration, and a PAN, they may claim the benefit of a lower DTAA rate. Taxocity helps Indian businesses navigate the entire compliance process, from obtaining the foreign signatory's DSC to filing ITR for the non-resident entity.

• Default TDS rate: 20% + surcharge + cess (Section 115A)
• DTAA benefit available only with TRC, Form 10F, No PE Declaration, and PAN
• Foreign company must file ITR in India if DTAA benefit is claimed

What is TDS on Royalty to Non-Residents?

When an Indian company makes a payment to a foreign (non-resident) company for use of intellectual property, patents, software licences, know-how, or technical services, that payment is classified as royalty or Fees for Technical Services (FTS) under Indian tax law.

Under the Direct Tax Code 2025, the Indian payer is responsible for deducting tax at source (TDS) before remitting the amount abroad. Failure to deduct TDS correctly can expose the Indian company to penalties, interest, and disallowance of the expense.

Default TDS Rate: Section 115A

If no DTAA benefit is claimed, the applicable TDS rate under Section 115A is:

Payment Type	TDS Rate (Section 115A)	Surcharge & Cess
Royalty (non-resident company)	20%	Applicable as per slab
Fees for Technical Services (FTS)	20%	Applicable as per slab

Important: The effective rate is 20% + surcharge + cess. Do not apply the older 10% or 15% rates, which are no longer current.

DTAA Rates by Country (2026)

India has signed Double Taxation Avoidance Agreements (DTAA) with several countries offering lower withholding tax rates on royalty and FTS payments. The non-resident company can benefit from these rates only if all required compliance documents are in place.

Country	DTAA Rate on Royalty / FTS	Default Rate (Sec 115A)
UAE	10%	20% + surcharge + cess
Switzerland	10%	20% + surcharge + cess
Sweden	10%	20% + surcharge + cess
Russia	10%	20% + surcharge + cess
China	10%	20% + surcharge + cess
South Korea	10%	20% + surcharge + cess
Italy	20%	20% + surcharge + cess
Denmark	20%	20% + surcharge + cess

For country-specific DTAA compliance details, Taxocity has dedicated guides: UAE-India DTAA, China-India DTAA, Sweden-India DTAA, Russia-India DTAA, and South Korea-India DTAA.

When Can the Foreign Company Use Section 115A?

If the foreign company does not wish to claim DTAA benefit, it can pay tax at the flat Section 115A rate (20% + surcharge + cess) on royalty or FTS income. In this case, the foreign company is not required to file an Income Tax Return (ITR) in India.

However, if the foreign company opts for a lower DTAA rate, it must file an ITR in India and comply with all the documentation requirements listed below.

Documents Required to Claim DTAA Benefit

To apply the lower DTAA rate instead of the Section 115A default, the following are mandatory:

• Tax Residency Certificate (TRC) - issued by the tax authority of the foreign company's home country, confirming its tax residency
• Form 10F - filed online on the Indian Income Tax portal by the foreign company
• No PE Declaration - a declaration confirming that the foreign company does not have a Permanent Establishment (PE) in India
• PAN Card - the foreign company must obtain an Indian PAN to file ITR in the future
• Income Tax Login - an account on the Indian Income Tax e-filing portal
• DSC of the Authorised Signatory - a Digital Signature Certificate of the foreign company's authorised signatory, required to file ITR and Form 10F online

All six documents must be in place before the Indian company deducts TDS at the DTAA rate. If any document is missing, the default 20% (Section 115A) rate applies.

How to Get DSC for a Foreign Signatory

One of the most overlooked requirements is the Digital Signature Certificate (DSC) of the foreign director or authorised signatory. A regular DSC of an Indian director or partner will not work for filing on behalf of the foreign company. The DSC must belong to the foreign individual authorised to sign on behalf of the company.

To obtain a DSC for a foreign signatory, the following are required:

• Email OTP and phone OTP from the foreign individual
• Video verification of the foreign individual
• Address proof (such as a driving licence)
• Photograph
• Copy of passport

This is a critical step and often causes delays in the overall compliance process. Taxocity assists in coordinating the DSC process for foreign signatories end-to-end.

Step-by-Step Process for Indian Companies (2026)

Here is the complete process an Indian company must follow when making royalty or FTS payments to a non-resident:

1. Determine the nature of payment - confirm whether the payment qualifies as royalty or FTS under the Direct Tax Code 2025
2. Check DTAA applicability - verify if India has a DTAA with the foreign company's country of residence
3. Collect compliance documents - obtain TRC, Form 10F, No PE Declaration, PAN, IT login, and DSC from the foreign company
4. Deduct TDS at the correct rate - apply DTAA rate if all documents are valid; otherwise deduct at 20% + surcharge + cess under Section 115A
5. Deposit TDS and file TDS return - deposit the deducted tax with the Indian government and file Form 27Q (TDS return for non-residents)
6. Issue Form 16A - provide the foreign company with Form 16A as proof of TDS deducted
7. Foreign company files ITR - if DTAA benefit was claimed, the foreign company must file its ITR in India for that financial year

TDS Deduction: Individuals vs. Other Than Individuals

While the base rate under Section 115A is 20% for all categories, the surcharge and cess vary:

Category	Base TDS Rate	Surcharge	Health & Education Cess
Individual (non-resident)	20%	As per applicable income slab (10%/15%/25%/37%)	4%
Foreign Company / Other than Individual	20%	2% (if income > ₹1 Cr) / 5% (if income > ₹10 Cr)	4%

The effective TDS rate for a foreign company, after surcharge and cess, will typically be higher than the headline 20%. Always compute the exact liability before remittance.

Common Mistakes Indian Companies Make

• Applying an outdated TDS rate of 10% or 15% instead of the current 20% under Section 115A
• Accepting Form 10F in physical form rather than the mandatory online filing
• Not verifying the validity period of the TRC before each payment
• Using a domestic director's DSC instead of the foreign signatory's DSC for filings
• Skipping the No PE Declaration, which renders the DTAA benefit invalid
• Not obtaining PAN for the foreign company before the first payment

How Taxocity Helps

Taxocity, with over three decades of experience in Indian tax compliance, offers end-to-end support for Indian companies making royalty and FTS payments to non-residents. Our services include:

• Determining the applicable TDS rate (Section 115A vs. DTAA)
• Coordinating TRC, Form 10F, and No PE Declaration from the foreign company
• Obtaining PAN and creating the income tax login for the foreign entity
• Arranging DSC for the foreign authorised signatory
• Filing Form 27Q (TDS return) and issuing Form 16A
• Filing the ITR of the foreign company in India where required
• 100% compliance guarantee, backed by real human experts and a 4.8/5 rating from 5,000+ clients

We also have dedicated country-specific guides for DTAA compliance with Switzerland, Italy, Denmark, and more.

Talk to a DTAA Compliance Expert Today

Key Takeaways

1. Default TDS rate on royalty/FTS to non-residents is 20% + surcharge + cess under Section 115A of the Direct Tax Code 2025
2. DTAA rates (as low as 10%) are available but require TRC, Form 10F, No PE Declaration, PAN, IT login, and DSC of the foreign signatory
3. If DTAA benefit is availed, the foreign company must file an ITR in India
4. If only Section 115A applies (no DTAA benefit), ITR filing by the foreign company is not required
5. The DSC must belong to the foreign authorised signatory - not any Indian director or partner
6. Form 27Q is the TDS return to be filed by the Indian company for payments to non-residents

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Disclaimer: This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and DTAA provisions are subject to change. Please consult a qualified tax advisor or reach out to a Taxocity expert for advice specific to your situation before making any decisions regarding TDS on royalty payments to non-residents.