If your Indian business pays for SaaS tools like Slack, Zoom, Salesforce, or AWS to a foreign company, you are likely required to deduct TDS. Under Section 115A of the Direct Tax Code 2025, the applicable TDS rate is 20% (plus surcharge and cess) on payments classified as Royalty or Fees for Technical Services (FTS). However, if the foreign company provides a valid Tax Residency Certificate (TRC), Form 10F, No PE Declaration, and a PAN, the lower DTAA rate can apply — reducing your TDS burden significantly.

• Default TDS rate on SaaS payments: 20% + surcharge + cess under Section 115A
• DTAA rates vary by country: UAE, Russia, China, Sweden, Switzerland, South Korea = 10%; Italy, Denmark = 20%
• DTAA benefit is not automatic — foreign vendor must furnish TRC, Form 10F, and No PE Declaration

Is SaaS a Royalty or FTS Under Indian Tax Law?

This is the foundational question. Whether TDS applies — and at what rate — depends on how the SaaS payment is classified under Indian tax law.

Royalty includes payments for the use of, or the right to use, any copyright, patent, invention, model, design, or secret formula. Fees for Technical Services (FTS) covers payments for managerial, technical, or consultancy services that make available technical knowledge or skill.

Indian tax authorities and the Income Tax Appellate Tribunal (ITAT) have, in multiple rulings, treated SaaS payments as either Royalty (access to software) or FTS (technical services delivered via the internet). In most cases, payments for standard off-the-shelf SaaS subscriptions are treated as Royalty, making Section 115A directly applicable.

If the SaaS vendor provides customisation, integration support, or dedicated technical resources, the payment could also qualify as FTS. Either way, TDS is applicable, and the rate under Section 115A is 20% + surcharge + cess.

What is the Default TDS Rate on SaaS Payments?

Under Section 115A of the Direct Tax Code 2025 (replacing the Income Tax Act 1961), the TDS rate applicable on Royalty and FTS payments made to non-resident foreign companies is:

Payment Type	Section	TDS Rate
Royalty (SaaS software access)	Section 115A	20% + surcharge + cess
Fees for Technical Services (FTS)	Section 115A	20% + surcharge + cess
With valid DTAA documentation	Applicable DTAA Article	10%–20% (country-specific)

The deduction must be made at the time of payment or credit, whichever is earlier, under Section 195 of the tax code. Failure to deduct TDS makes your company liable for the TDS amount, plus interest and penalties.

Does DTAA Apply to SaaS Payments?

Yes — DTAA (Double Taxation Avoidance Agreement) can apply to SaaS payments, but only if the foreign company takes the right steps to claim the benefit. India has DTAA with over 90 countries, and the Royalty/FTS articles in these treaties often specify lower withholding tax rates than the domestic rate of 20%.

DTAA Rates for Royalty/FTS by Country

Country	DTAA Rate (Royalty/FTS)	Default Rate (Section 115A)
UAE	10%	20% + surcharge + cess
USA	15%	20% + surcharge + cess
Sweden	10%	20% + surcharge + cess
Switzerland	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

Where the DTAA rate equals the domestic rate (e.g., Italy, Denmark), there is no net benefit from invoking the treaty for rate reduction — though the treaty may still provide other protections.

Documents Required to Claim DTAA Benefit

The DTAA benefit is not automatic. The foreign company (SaaS vendor) must provide all of the following documents to the Indian payer before TDS is deducted at the lower treaty rate:

• Tax Residency Certificate (TRC) — issued by the tax authority of the foreign company's home country, confirming it is a tax resident of that country
• Form 10F — self-declaration form filed by the foreign company on the Indian Income Tax portal
• No Permanent Establishment (PE) Declaration — a declaration stating that the foreign company does not have a PE in India, which is critical for Royalty/FTS treatment under the DTAA
• PAN (Permanent Account Number) — required for filing ITR in India if DTAA benefit is claimed; also essential for income tax login creation
• Income Tax Login — the foreign company must have an active Indian income tax portal login
• DSC of Authorised Signatory — a valid Digital Signature Certificate of the foreign company's authorised signatory is mandatory to file the ITR in India. Note that a regular director's DSC may not suffice — an organisational DSC is required

If the foreign SaaS vendor does not furnish these documents, the Indian payer must deduct TDS at the default rate of 20% + surcharge + cess under Section 115A.

How to Get a DSC for a Foreign Signatory

Getting a DSC for the authorised signatory of a foreign company involves a specific process:

• Email and phone OTP verification from the foreign individual
• Video verification of the foreign individual
• Address proof (e.g., driving licence)
• Photograph
• Copy of passport

This process can be complex for foreign vendors unfamiliar with Indian compliance requirements. Taxocity's team of experts can coordinate this end-to-end on behalf of both Indian and foreign parties.

Can the Foreign Company Pay Tax at 20% and Skip ITR Filing?

Yes — under Section 115A, if a foreign company receives Royalty or FTS income from India and tax is deducted at the prescribed rate (20% + surcharge + cess), the foreign company is not required to file an Income Tax Return (ITR) in India. The TDS is treated as the final tax.

However, if the foreign SaaS vendor wishes to claim the benefit of DTAA — and pay at a lower treaty rate — they must file an ITR in India. This is a mandatory condition for availing DTAA benefit.

Scenario	TDS Rate	ITR Filing Required?
TDS deducted at 20% (Section 115A)	20% + surcharge + cess	No
DTAA benefit claimed at lower rate	10%–15% (treaty rate)	Yes — mandatory ITR in India

TDS Compliance Steps for the Indian Payer

If your Indian company is paying for a SaaS subscription from a foreign vendor, here is what you need to do:

1. Classify the payment — Determine whether it is Royalty or FTS based on the nature of the SaaS service
2. Check for a DTAA — Identify if India has a tax treaty with the vendor's country
3. Collect DTAA documents — Request TRC, Form 10F, No PE Declaration, and PAN from the foreign vendor before making the payment
4. Determine the applicable rate — Apply DTAA rate if valid documents are in hand; else apply 20% under Section 115A
5. Deduct TDS and deposit — Deduct TDS at source and deposit it with the Indian government within the prescribed timelines
6. File TDS Return (Form 27Q) — Report all payments made to non-residents in Form 27Q on a quarterly basis
7. Issue Form 16A — Provide the TDS certificate to the foreign vendor for their records and any tax credit claims

Non-deduction of TDS under Section 195 can result in the Indian company being treated as an assessee-in-default, attracting interest at 1% per month and penalties up to the amount of TDS not deducted.

What About GST on SaaS Payments to Foreign Vendors?

TDS and GST are separate obligations. When an Indian company pays for SaaS from a foreign vendor, it is also required to pay GST under the Reverse Charge Mechanism (RCM) at 18%. This is because the import of services is treated as a taxable supply in India. The Indian recipient self-assesses and pays the GST under RCM — the foreign vendor does not collect it.

For companies registered under GST, the RCM GST paid can usually be claimed as Input Tax Credit (ITC) — effectively making it a cash-flow item rather than a cost. Learn more about GST registration and GST filing obligations for your business.

Common Mistakes Indian Companies Make

• Not deducting TDS at all — Many startups and SMEs assume SaaS payments are exempt because the vendor is overseas. They are not.
• Using the wrong rate — Applying a concessional DTAA rate without collecting proper documentation (TRC, Form 10F, No PE Declaration) exposes the payer to default liability
• Ignoring Form 27Q — Quarterly TDS returns for non-resident payments are mandatory and have specific deadlines
• Not getting PAN for the foreign vendor — Without PAN, TDS may need to be deducted at a higher rate (20% or the tax treaty rate, whichever is higher, without the benefit of treaty)
• Confusing Section 195 and Section 115A — Section 195 governs the deduction obligation on the Indian payer; Section 115A sets the rate for the foreign recipient. Both must be read together

How Taxocity Can Help

Taxocity has more than three decades of experience in cross-border tax compliance for Indian businesses. With a 4.8/5 rating from over 5,000 clients, our team provides end-to-end support — from analysing whether your SaaS payments attract Royalty or FTS treatment, to coordinating with the foreign vendor for DTAA documentation, to filing Form 27Q and issuing Form 16A.

We handle the complexity of getting foreign company PAN, income tax login, and DSC of authorised signatories — so your compliance is complete and your business is protected from default liability. Our 100% compliance guarantee means you don't have to worry about notices from the Income Tax Department.

For detailed guidance on TDS on royalty payments, refer to our resources on TDS on Royalty Payments to Non-Residents in India and country-specific DTAA requirements like Form 10F for UAE-India DTAA, Sweden-India DTAA, and Switzerland-India DTAA.

Key Takeaways

1. SaaS payments to foreign companies are generally classified as Royalty or FTS, attracting TDS at 20% + surcharge + cess under Section 115A
2. DTAA can reduce this to as low as 10% for countries like UAE, Sweden, Switzerland, Russia, China, and South Korea
3. To claim DTAA, the foreign vendor must provide TRC, Form 10F, No PE Declaration, PAN, income tax login, and DSC
4. If DTAA benefit is claimed, the foreign company must file an ITR in India
5. If TDS is deducted at the full 20% rate under Section 115A, the foreign vendor is exempt from filing ITR in India
6. Indian payers must file Form 27Q quarterly and issue Form 16A to the foreign vendor
7. GST under RCM at 18% applies separately on SaaS imports and must not be confused with TDS

---

Disclaimer: This article is for informational purposes only and does not constitute tax advice. Tax laws are subject to change, and the applicability of provisions varies based on specific facts and circumstances. Please consult a qualified tax advisor or reach out to Taxocity's experts before making any tax-related decisions.