Sometimes. An Indian company generally has to withhold tax when a payment to a non-resident or foreign company is chargeable to Indian income tax. Sending money overseas does not, by itself, create a withholding obligation. First classify what the contract buys, determine whether the amount is taxable in India under domestic law, and then test any applicable tax treaty and its documentation requirements. For remittances made on or after 1 April 2026, the Income Tax Department uses Forms 145 and 146 under the Income Tax Act 2025 and Income Tax Rules 2026; the familiar Forms 15CA and 15CB are the legacy equivalents.
This is a decision framework, not an opinion on a particular invoice. The contract, work location, intellectual-property rights, recipient’s residence, permanent-establishment facts and available certificates can change the result.
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When an Indian company must withhold on a foreign-vendor payment
The key test is chargeability under Indian income-tax law. If the amount paid to a non-resident or foreign company is taxable in India, the Indian payer normally needs to withhold at the time and in the manner required by the applicable provision. If the amount is not chargeable, income-tax withholding may not be due, but remittance reporting and banking documentation can still apply.
There is no rule that every outward remittance is subject to withholding. A payment can be sent to an overseas bank account without being taxable in India, while another payment of the same amount can be taxable because it represents a service, right or financing return connected with India. The invoice description alone is not enough.
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The Income Tax Department’s current Form 145 guidance expressly separates taxable remittances from non-taxable remittances. Form 145 includes a Part D route for a non-taxable remittance, subject to the exception stated in the form instructions.
How to tell whether a payment is chargeable to tax in India
1. Identify the payee and the transaction
Confirm whether the recipient is a non-resident individual or other non-resident person, or a foreign company. Obtain the legal name, address, country of tax residence and any registration or tax-identification details used for the payment.
Then read the agreement, statement of work, licence, purchase order and amendments. Describe what the company is actually buying:
- physical goods or equipment;
- ordinary or specialised services;
- the right to use software, data, a brand, copyright, know-how or other intellectual property;
- interest, a guarantee fee or another financing return; or
- another contractual right, reimbursement or mixed package.
Separate bundled items where possible. A single invoice can contain goods, installation, support and a licence, each with a different tax analysis.
2. Apply Indian domestic-law rules
Ask whether the recipient’s income has a sufficient Indian source or other connection under the domestic rules. Relevant facts can include where services are performed, what rights are granted, where personnel or equipment are used, and whether the payment is for a return that Indian law specifically brings into the tax net.
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Do not infer the answer from the vendor’s country, the currency, the location of the bank account or the fact that the vendor has no Indian office. Those facts may be relevant, but none is a stand-alone exemption. The legal character of the payment and its connection with India must be documented.
3. Test treaty relief separately
After the domestic-law analysis, check the double taxation avoidance agreement (DTAA) between India and the vendor’s country, if one applies. Form 146 has separate panels for taxability under the Act without treaty relief and taxability under the relevant treaty.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteA treaty analysis can require all of the following:
- proof that the recipient is a resident of the treaty country for the relevant period;
- the treaty article that covers the payment, such as business profits, royalties, interest or fees for technical services;
- the treaty’s definitions and exclusions for that article;
- beneficial-ownership or other entitlement conditions;
- whether the recipient has a permanent establishment or fixed base in India and whether the payment is connected with it; and
- any treaty rate ceiling or other limitation.
Meeting one condition does not prove that every other condition is met. Obtain and retain the residence and treaty documents that support the position taken.
Taxable and non-taxable outcomes are different
| Question | If the payment is taxable in India | If the payment is not taxable in India |
|---|---|---|
| Income-tax withholding | Withhold according to the applicable domestic provision, as modified by an eligible treaty position. | Income-tax withholding may not be required, but confirm the remittance procedure and any exception in the current rules. |
| Form 145 route for a remittance from 1 April 2026 | Part A, B or C, depending on the aggregate amount and the order or certificate available. | Part D, subject to the exception stated in the official instructions. |
| Evidence needed | Payment classification, domestic-law analysis, treaty evidence where claimed, and TDS details. | Records showing why the payment is outside Indian chargeability and the information supplied for the remittance. |
The table describes procedural routes, not a blanket exemption. In particular, the ₹5 lakh figure used in the current forms is a routing threshold; it is not a tax-free allowance and does not automatically remove withholding.
Form 145 and Form 146: what changed from Forms 15CA and 15CB
For a remittance made on or after 1 April 2026, the Income Tax Department says the Income Tax Act 2025 and Income Tax Rules 2026 apply to the filing process. The Department’s income-tax-forms FAQ identifies Form 145 as the successor, or equivalent, to old Form 15CA and Form 146 as the successor to old Form 15CB. It also says that the core information, certificate and TDS-compliance requirements remain similar.
Use the form that applies on the remittance date. An April 2026 payment can relate to a liability that arose earlier; the procedural form is governed by the payment date, while the law governing the underlying income can depend on the accrual and other facts. Check the current law for that particular transition case rather than assuming that an old form remains valid.
Form 145
Form 145 is filed for each remittance before the money is sent. Its parts route the remittance as follows:
| Part | When the Department describes its use | What it means for the payer |
|---|---|---|
| Part A | A taxable remittance where the aggregate taxable amount during the tax year does not exceed ₹5 lakh. | File the prescribed remittance information before payment and complete the related withholding compliance. |
| Part B | A taxable remittance where the aggregate amount exceeds ₹5 lakh and an assessing-officer order or certificate has been obtained. | Use the order or certificate to support the reduced, nil or specified withholding permitted by that document. |
| Part C | A taxable remittance where the amount exceeds ₹5 lakh and an accountant’s Form 146 has been obtained. | Enter the accountant’s certificate details and the tax and TDS information required by the form. |
| Part D | A non-taxable remittance, subject to the rule exception stated in the instructions. | Report the non-taxable basis; do not treat this route as proof that every similar payment is non-taxable. |
The ₹5 lakh test is based on the aggregate taxable remittance amount during the tax year for the routes described above. It is not a general threshold below which no tax can ever be withheld.
Form 146
Form 146 is the accountant’s certificate used in the relevant Part C route. The official Form 146 user manual describes a certificate for a taxable payment to a non-resident or foreign company where a payment or aggregate exceeds ₹5 lakh in the tax year.
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The form asks the accountant to address taxability under the Act without treaty relief, taxability under the treaty, and TDS details. The certificate therefore supports a documented conclusion; it does not replace the need to understand the contract or supply a universal rate.
A practical workflow before sending the money
- Freeze the facts. Collect the signed contract, invoice, purchase order, deliverables, service locations, licence terms, payment schedule and the recipient’s legal and tax-residence details.
- Classify each component. Decide whether the amount is for goods, services, intellectual-property rights, financing or a mixed supply. Split the consideration when the agreement supports a reliable allocation.
- Write the domestic-law conclusion. State why each component is or is not chargeable in India, citing the relevant payment character and Indian connection. Do not rely on the invoice label.
- Check the treaty. If treaty relief is possible, obtain residence evidence and test the article, definitions, exclusions, beneficial ownership, permanent-establishment or fixed-base provisions and rate limits.
- Calculate the tax year aggregate. Add taxable remittances relevant to the ₹5 lakh routing threshold. Keep the calculation with the transaction file.
- Select the route. Choose Form 145 Part A, B, C or D based on taxability, the aggregate amount and whether an assessing-officer order or Form 146 is available.
- Obtain certificates or orders early. If the chosen route needs an accountant’s Form 146 or an assessing-officer order or certificate, secure it before the remittance is released.
- File before remittance. Submit Form 145 for the individual remittance, retain the acknowledgement and give the bank the documents it requests.
- Withhold, deposit and report. Deduct the amount required by the applicable domestic provision or valid treaty position, deposit it within the prescribed time and complete the associated TDS reporting and certificates.
- Retain an audit trail. Keep the contract, classification memo, residence certificate, treaty analysis, Form 145, Form 146 or order, payment calculation and proof of withholding and deposit together.
How a tax treaty can change the result
A treaty can reduce the amount otherwise payable under domestic law, allocate taxing rights differently or require a threshold such as a permanent-establishment connection before India can tax a category of income. The relief is conditional, not automatic.
Notification No. 39 of 2026 illustrates the level of detail that can matter. Its treaty text for fees for technical services defines the covered services, lists exclusions, addresses when income is deemed to arise, sets a treaty-specific cap for qualifying residents and deals with permanent-establishment or fixed-base connections.
That notification is an example of treaty drafting, not a universal Indian withholding rate. It cannot be applied to a different country, a different treaty article or a different vendor category without checking the applicable bilateral agreement.
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Common payment situations that need careful classification
Imported goods
For a shipment of goods, review whether the consideration is only for the goods or also includes installation, commissioning, warranty support, software rights or technical assistance. The non-goods elements can have a different tax character, so a single “purchase” invoice should not end the analysis.
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Remote or on-site services
Record where the work is performed, who performs it, what deliverable is supplied and whether the contract grants a continuing right to use technology or know-how. A service performed entirely outside India is not automatically outside Indian tax, and a service involving India is not automatically taxable; the domestic and treaty rules decide.
Software, data and intellectual property
Read the licence grant. A limited right to access a platform, a right to reproduce or modify software, and a transfer of know-how can be legally different transactions. Identify the rights obtained instead of assuming that every technology invoice is either a service fee or a royalty.
Reimbursements and mixed invoices
Determine whether an amount is a true pass-through supported by third-party evidence or part of the vendor’s own consideration. Separate reimbursed costs, taxes, travel and service fees in the contract and accounting records, then apply the relevant rules to each component.
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A conclusion that no tax is chargeable does not end the compliance review. Form 145 Part D exists for a non-taxable remittance, and banks or other intermediaries may still require information before releasing funds. Conversely, filing a remittance form does not itself prove that the underlying payment is taxable or non-taxable.
Keep the withholding decision and the remittance-information decision as two linked but separate workpapers. This prevents the common mistake of treating a form threshold as a tax exemption.
Pitfalls that create avoidable exposure
- “It is overseas, so there is no TDS.” Destination of funds is not the chargeability test.
- “The invoice is below ₹5 lakh, so no tax applies.” The ₹5 lakh amount routes specified forms and certificates; it is not a blanket withholding exemption.
- “The treaty rate is always lower.” Treaty eligibility, residence, beneficial ownership and the correct article must be established first.
- “Form 15CA/15CB is still the current name.” For remittances from 1 April 2026, use the Income Tax Act 2025 process and Forms 145 and 146.
- “The vendor’s invoice description settles the issue.” The contract and rights or services actually supplied control the classification.
- “A prior payment proves the next one.” A changed scope, country, treaty document, tax year aggregate or work location can change the outcome.
When to involve a professional
Obtain advice from a chartered accountant experienced in Indian cross-border remittances when the amount is material, the payment is mixed or recurring, treaty relief is claimed, the recipient has an Indian presence, or the classification is disputed. The official Form 146 process itself places an accountant’s certificate in the route for specified taxable remittances above ₹5 lakh. Give the adviser the complete contract and evidence, not only the invoice, so the conclusion can address both chargeability and the correct remittance form.
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