The applicable withholding tax rate is the rate prescribed in the Income Tax Act, 1961 or relevant Double Taxation Avoidance Agreement (DTAA), whichever is lower. Non-residents are liable to pay taxes in India on source income, including:
- Interest, royalties, and fees for technical services paid by a resident;
- Salary paid for services rendered in India; and
- Income arising from a business connection or property in India.
Withholding Tax (WHT), also called retention tax, is an obligation on the individual (either resident or non-resident) to withhold tax when making payments of a specified nature, such as rent, commission, salary, for professional services, to satisfy contract provisions, etc. – at rates specified in India’s tax regime.
Withholding tax thresholds and rates on payments to Indian resident companies
A person providing a benefit or a perquisite arising from a business or a profession can withhold tax at 10 percent of the value of such benefit – which could also be partly or wholly non-cash.
| Type of Payment | Threshold for Tax Deduction (INR) | WHT Rate (%) |
|---|---|---|
| Payments by individual / HUF not covered under contractor / commission / professional fee rules | 5,000,000 | 5 |
| Dividends on shares | 10,000 (revised from April 1, 2025) | 10 |
| Dividends from mutual fund units | 10,000 (revised from April 1, 2025) | 10 |
| Purchase of immovable property | 5,000,000 | 1 |
| Cash withdrawals from banks | 10,000,000 (2,000,000 if no tax returns filed for past 3 years) | 2 / 5 (higher slab) |
| Payments to e-commerce sellers via platforms | No threshold | 0.1 |
| Winnings from online gaming | No threshold | 30 |
| Purchase of goods | 5,000,000 | 0.1 |
| Interest – specified categories | 10,000 (revised from April 1, 2025) | 10 |
| Interest – other categories | 10,000 (general threshold); 50,000 / 100,000 for bank/post office deposits for senior citizens | 10 |
| Professional services | 50,000 (from April 1, 2025) | 10 |
| Technical services | 50,000 (from April 1, 2025) | 2 |
| Royalty payments | 50,000 (from April 1, 2025) | 10 |
| Royalty on cinematographic film rights | 50,000 | 2 |
| Business or professional perquisites | 20,000 | 10 |
| Transfer of Virtual Digital Assets (VDA) | 50,000 (specified cases) / 20,000 (others) | 1 |
| Commission or brokerage | 20,000 (revised from April 1, 2025) | 2 |
| Rent – plant, machinery, or equipment | 50,000 per month or part thereof (revised from FY 2025–26) | 2 |
| Rent – land, building, or furniture | 50,000 per month or part thereof (revised from FY 2025–26) | 10 |
| Contract payments (non-individual / HUF) | 30,000 (single payment) or 100,000 (annual total) | 2 |
| Contract payments to individual / HUF | 30,000 (single payment) or 100,000 (annual total) | 1 |
Notes:
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Application for Permanent Account Number (PAN)
All individuals/non-individuals (including foreign citizens/entities)who enters into a financial transaction of an amount aggregating to INR 250,000 (US$ 3040) or more shall be required to apply to a tax officer for a PAN.
If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Income-tax Act, the rates in force, or the rate of 20 percent, whichever is higher.
India’s withholding tax regime and the Finance Act, 2021
Finance Act 2021 has prescribed a levy of higher tax deducted at source (TDS) and tax collected at source (TCS) on non-filers of income-tax return. Accordingly, higher TDS will be applicable to those having interest income, dividend income, annuity pensions, income from capital gains.
It was proposed to omit Sections 206AB and 206CCA in order to avoid blocking of capital and reduce the compliance burden for the deductor/collector. This will be effective from 1st April 2025.
However, this higher TDS will only apply to a specified category of non-filers of return.
As per the provisions under the Indian Income-tax Act, the higher TDS rate applied will be the higher of anyone of the following:
- Twice the rate specified in the relevant provision of the Indian Income-tax Act; or
- Twice the rate or rates in force; or
- The rate of five percent.
India’s WHT rates on payments to non-resident companies
|
Payments to Non-resident Companies for FY 2025-26 |
|
|
Nature of payment |
WHT rate (%) |
|
Interest on foreign currency (subject to conditions) |
5% |
|
Interest on money borrowed in foreign currency under a loan agreement or by way of long-term infrastructure bonds (or rupee-denominated bonds) |
5% |
|
Interest on investment in long-term infrastructure bonds issued by Indian company (rupee denominated bonds or government security) |
5% |
|
Interest payable on long-term bonds listed on IFSC |
4% |
|
Non-specified type of interest |
20% |
|
Royalty and technical fees |
20% |
|
Dividend income |
20% |
|
Dividend income from a company located in an IFSC |
10% |
|
LTCG gains other than equity shares of a company or units of equity oriented fund/business trust |
20% |
|
LTCG on equity shares of a company or units of equity-oriented fund/business trust |
10% |
|
Income by way of games and winnings [lotteries, puzzles, online gaming, horse race] |
30% |
|
Other income |
30% |
Notes:
- Percentage to be increased by a surcharge and health and education cess to compute the effective rate of tax withholding.
- Income from units of specified mutual funds received on or after 1 April 2020 is now taxable in the hands of the unit-holders. As per Finance Act, 2023, 'Specified Mutual Fund' means a mutual fund where not more than 35 percent of its total proceeds are invested in the equity shares of domestic companies. This provision will be applicable to Specified Mutual Funds acquired on or after 1 April 2023.
- Dividends received from Indian companies prior to April 1, 2020 are tax-free in the hands of the shareholder. Any dividends received post April 1, 2020 are chargeable in the hands of the non-resident shareholder at the rate of 20 percent or treaty rate, whichever is beneficial.
- There is no threshold for payment to non-resident companies up to which no tax is required to be withheld.
- If the PAN of the deductee is not quoted, the rate of WHT will be the rate specified in relevant provisions of the Act, the rates in force, or the rate of 20 percent, whichever is higher. The government has notified rules that do not mandate quoting of PAN, subject to certain conditions.
- The payer is obligated to report specific information in the prescribed form (whether or not such payment is chargeable to tax).
- Where taxes are withheld as per the rates provided above with respect to dividend, interest, royalty, or FTS and there is no other income chargeable to tax in the hands of the non-resident, then compliance obligations relating to filing of return of income by such non-resident in India are not required.
- As per the Finance Act, 2023 no deduction is to be allowed for Securities Transaction Tax (STT) on capital gains.
|
Rates for Withholding Tax on Payments to Non-Residents |
|
|
Nature of income |
WHT (%) |
|
Interest |
20% |
|
Dividends paid by domestic companies |
Nil |
|
Royalties |
20% |
|
Technical services |
20% |
|
Any other services: Individuals |
30% of income |
|
Any other services: Companies |
40% of the net income |
