—Guide
Withholding Tax on Foreign Payments From India: Software, Services and Royalties
When Indian businesses must withhold tax on payments to foreign software providers, service firms and licensors, and how to decide the rate.
Indian businesses pay foreign companies for software, cloud services, consulting, advertising and licences every day. Whether tax must be withheld — and at what rate — depends on the nature of the payment, Indian law, and the relevant tax treaty. Getting it wrong falls on the payer. This guide explains the approach.
Note: this article describes the position under the Income-tax Act, 1961. From 1 April 2026, withholding on payments to non-residents continues under the Income-tax Act, 2025, with renumbered provisions and forms.
The Starting Question: Is It Taxable in India?
Tax must be withheld on a payment to a non-resident only if the income is chargeable to tax in India. That depends on:
- What the payment is for — royalty, technical services, business profits, interest.
- Indian domestic law.
- The tax treaty with the recipient's country, where it's more beneficial and properly documented.
Software
Payments for software licences have been heavily litigated. Following court rulings, payments for standard software licences that don't transfer copyright rights are, in many cases, not treated as royalties under treaties. Where there's no PE, they may not be taxable in India. Each arrangement should still be analysed, especially where services are bundled.
Services
Service fees may be taxable as fees for technical services, depending on the treaty definition. Some treaties tax them only if they 'make available' technical knowledge. Otherwise, they may be business profits, taxable only with a PE.
Royalties
Payments for the use of trademarks, patents, designs or know-how are generally royalties, taxable in India at domestic or treaty rates.
Grossing Up
If the contract says the foreign party receives the full amount, the Indian payer bears the tax, and it's computed on the grossed-up amount.
Documentation
- Contract and invoice.
- TRC and Form 10F.
- PE declaration where relevant.
- Form 15CB from a CA where required, and Form 15CA before remittance.
The Equalisation Levy
The equalisation levy on online advertising was abolished from 1 April 2025, and the levy on e-commerce operators earlier, so it no longer applies to new payments.
Getting Help
Think Filing analyses foreign payments, issues Form 15CB and handles withholding and returns.