Non-Resident TDS from 1 April 2026: Section 393(2), DTAA, Rates and Practical Compliance Guide
From 1 April 2026, the Income Tax Act, 2025 applies to TDS events where the earlier of credit or payment happens on or after that date. For non-salary payments to non-residents, the important reference is now Section 393(2) instead of old Section 195. The core rule is still familiar: if the sum paid to a non-resident is chargeable to tax in India, tax must be deducted at source. However, section references, form numbers and compliance mapping have changed, so using old references in Tax Year 2026-27 may create return filing or system validation issues.
1. What is Section 393(2) for Non-Resident TDS?
Section 393(2) of the Income Tax Act, 2025 covers TDS on specified non-salary payments made to non-residents, including non-resident individuals and foreign companies. It uses a table-based structure for different categories of income such as interest, dividend, securities income, offshore fund income and other sums chargeable to tax in India.
The residual entry for many practical cases is Section 393(2), Table Sl. No. 17, which applies to interest not covered by special entries and to any other sum chargeable under the Act, other than salary. The rate for this residual category is generally rates in force, which means the applicable domestic law rate or the beneficial DTAA rate, subject to documents and conditions.
Key points for non-resident TDS
- TDS applies only if the income or sum is chargeable to tax in India.
- For many non-resident payments, there is no basic threshold limit under the non-resident TDS table.
- DTAA benefit may be claimed if the payee provides required documents.
- Where the law says “rates in force”, surcharge and health and education cess may also apply unless a treaty position changes the outcome.
- Lower or nil deduction may be possible by obtaining an order or certificate under Section 395, as applicable.
2. Key Non-Resident TDS Rates for Tax Year 2026-27
The following table gives a practical working summary. Exact rate selection should always be checked with the Income Tax Act, Finance Act, relevant DTAA and the facts of the payment.
| Nature of Payment | Practical TDS Position | Important Note |
|---|---|---|
| Salary paid to non-resident employee | Slab rate under Section 392 | Not covered under Section 393(2) |
| NRO interest | Generally 30% plus applicable surcharge and cess, subject to DTAA | DTAA may reduce the rate in eligible cases |
| Foreign currency loan / specified bond interest | Usually 5%, 4% or 9% for specified entries, depending on the instrument and date conditions | Check Section 393(2) table entries and conditions |
| Royalty / fees for technical services | Generally domestic rate under rates in force; many cases may fall around 20%, subject to DTAA | Many DTAAs prescribe lower rates such as 10%, subject to TRC and Form 10F |
| Foreign sportsman or entertainer | 20% | No basic exemption benefit is generally applied at the withholding stage |
| Dividend paid to non-resident | Generally 20% under domestic law, or lower DTAA rate if eligible | TRC, Form 10F and beneficial ownership support are important |
| Long-term capital gains on property | Generally 12.5% plus applicable surcharge and cess for post-23 July 2024 regime | TDS is usually on gross sale consideration unless a lower deduction certificate is obtained |
| Short-term capital gains on property | Generally applicable slab/rates in force for the non-resident seller | Do not blindly apply 20%; nature of asset and holding period matter |
| Short-term capital gains on listed equity covered by special capital gains provision | Generally 20% | Check whether the transaction qualifies for the special rate |
| Rental income paid to NRI | Generally 30% plus applicable surcharge and cess, subject to DTAA or lower deduction certificate | TDS is commonly deducted on gross rent |
| Other taxable payments to non-resident / foreign company | Rates in force | For foreign companies, domestic rates can be high, so DTAA review is essential |
3. DTAA Benefit: The Most Important Planning Tool
A Double Taxation Avoidance Agreement can reduce TDS where the DTAA rate is lower than the domestic law rate and the non-resident payee is eligible to claim treaty benefit. This is very common for royalty, technical service fee, dividend, interest and certain business income situations.
Documents normally required for DTAA benefit
- Tax Residency Certificate (TRC) from the foreign country
- Form 10F, where required
- PAN, wherever applicable or practically required for reporting
- Beneficial ownership declaration
- No permanent establishment declaration, where relevant
- Invoice and agreement copy
- Nature of service and country of residence details
Example: UK company service payment
Suppose an Indian company pays ₹10,00,000 to a UK company for taxable technical services. If the domestic withholding rate works out to 20% but the applicable DTAA rate is 10%, TDS may be restricted to ₹1,00,000 if the UK company gives valid TRC, Form 10F and supporting declarations. Without documents, the payer may have to deduct at the higher domestic rate.
4. Property Purchase from NRI: Biggest Practical Risk Area
When a resident buyer purchases immovable property from an NRI seller, the buyer is responsible for TDS compliance. Unlike a normal resident seller transaction where 1% TDS applies above the specified threshold, NRI property transactions require withholding based on the taxability of the non-resident seller’s capital gains and applicable rates in force.
In practice, TDS is often deducted on the gross sale value unless the seller obtains a lower or nil deduction certificate. This creates a major cash flow issue because the seller may have to claim refund later after filing the income tax return.
Example: Long-term property sold by NRI
Property sale value is ₹1,20,00,000 and the property is a long-term capital asset. If the base long-term capital gains rate is 12.5%, the base TDS amount would be ₹15,00,000. However, surcharge and cess may increase the actual TDS, depending on the seller’s income level and applicable law. If the seller obtains a lower deduction certificate, the buyer should deduct as per that certificate.
5. No PAN Case: Higher TDS Risk
If the non-resident does not provide PAN, higher withholding provisions may apply. In many cases, this can result in TDS at 20% or a higher applicable rate. PAN also becomes important for reporting, refund claim, Form 26AS/AIS reflection and matching of credit.
6. April 2026 Compliance Checklist
For payments where the earlier of credit or payment occurs on or after 1 April 2026, the Income Tax Act, 2025 applies. The deductor should use the new section references and forms applicable under the new framework.
| Compliance Item | What to Check |
|---|---|
| Correct law | Use Income Tax Act, 2025 where credit or payment happens on or after 1 April 2026 |
| Correct section | Use Section 392 for salary and Section 393(2) for non-salary non-resident payments |
| Correct table entry | Use the specific Section 393(2) table entry; residual cases generally fall under Sl. No. 17 |
| DTAA documents | Collect TRC, Form 10F, PAN and beneficial ownership declaration before applying treaty rate |
| Remittance forms | Use Form 145 and Form 146 where foreign remittance reporting and CA certificate requirements apply |
| Quarterly TDS return | For non-resident TDS reporting, use the applicable new form, commonly mapped as Form 144 replacing old Form 27Q |
| TDS deposit | Deposit within the prescribed due date, generally by the 7th of the next month, with March-specific due date as applicable |
| Lower deduction | Where only part of the sum is taxable or lower TDS is justified, consider Section 395 certificate route |
7. Real-Life Practical Examples
Example 1: US consultant fee
An Indian company hires a US consultant and pays ₹8,00,000 for taxable technical services. If the applicable DTAA rate is 10% and documents are complete, TDS may be ₹80,000. If treaty documents are not available, domestic rate under rates in force may apply and the TDS amount can be higher.
Example 2: NRI rental income
A tenant pays rent of ₹1,00,000 per month to an NRI landlord. Annual rent is ₹12,00,000. If TDS is deducted at 30% base rate, base TDS is ₹3,60,000. Surcharge and cess should be checked separately. If a valid lower deduction certificate exists, the tenant should follow the certificate.
Example 3: NRI property sale
An NRI sells a long-term property for ₹80,00,000. At a 12.5% base rate, base TDS is ₹10,00,000 before surcharge and cess. If the actual taxable capital gain is much lower than the sale value, the seller should consider obtaining a lower deduction certificate before completing the transaction.
Example 4: Foreign company technical service
An Indian business receives a technical service invoice of ₹25,00,000 from a foreign company. If the domestic rate is 20%, base TDS is ₹5,00,000. If DTAA permits 10% and all documents are available, TDS may reduce to ₹2,50,000.
8. Major Mistakes to Avoid
- Using old Section 195 reference for a payment where the 2025 Act applies.
- Applying Section 393(2) to salary instead of Section 392.
- Applying DTAA rate without TRC, Form 10F and supporting declarations.
- Deducting TDS on NRI property transactions like a resident seller transaction.
- Ignoring surcharge and cess while computing TDS under domestic law.
- Assuming 20% applies to every capital gain case without checking asset type and holding period.
- Not applying for a lower deduction certificate where only part of the payment is taxable.
- Using old form numbers in new Act compliance filings where new forms are prescribed.
9. Documentation Checklist Before Payment
- Residential status confirmation of payee
- PAN of non-resident, wherever available or applicable
- Tax Residency Certificate
- Form 10F
- Beneficial ownership declaration
- No permanent establishment declaration, if relevant
- Invoice and agreement copy
- Nature of income or service
- Country of residence
- DTAA article and rate working
- Lower deduction certificate, if obtained
- Form 145 / Form 146 compliance, where remittance reporting applies
10. Step-by-Step Compliance Flow
- Identify whether the payee is resident or non-resident.
- Check whether the payment is salary or non-salary.
- For salary, apply Section 392. For non-salary non-resident payment, check Section 393(2).
- Confirm whether the sum is chargeable to tax in India.
- Select the correct table entry and rate.
- Check DTAA and collect TRC, Form 10F and declarations.
- Compute TDS including surcharge and cess, where applicable.
- Deduct TDS at the time of credit or payment, whichever is earlier.
- Deposit TDS within the prescribed due date.
- File the applicable TDS statement and remittance forms.
- Issue the TDS certificate and maintain complete working papers.
FAQs on Non-Resident TDS for Tax Year 2026-27
Q1. Is TDS mandatory on every payment to a non-resident?
No. TDS applies where the payment is chargeable to tax in India. If the sum is not chargeable to tax, TDS may not apply, but documentation and professional review are important.
Q2. Which section applies from 1 April 2026?
For non-salary payments to non-residents, Section 393(2) of the Income Tax Act, 2025 applies. Salary TDS is covered under Section 392.
Q3. Is there any threshold limit for non-resident TDS?
Many non-resident payment entries do not provide a basic threshold. TDS can apply from the first rupee if the sum is chargeable to tax in India.
Q4. Can DTAA reduce the TDS rate?
Yes. DTAA can reduce the TDS rate if the payee is eligible and provides required documents such as TRC, Form 10F and beneficial ownership declaration.
Q5. Who deducts TDS when property is purchased from an NRI?
The buyer is responsible for deducting and depositing TDS when purchasing property from an NRI seller.
Q6. Is TDS on NRI property sale deducted on profit or sale value?
In practice, it is often deducted on the gross sale consideration unless the seller obtains a lower or nil deduction certificate. This is why pre-sale tax planning is important.
Q7. What happens if PAN is not available?
Higher TDS may apply, and the deductee may face difficulty in getting TDS credit or refund. PAN should be obtained wherever possible.
Q8. What is the TDS rate for foreign companies?
It depends on the nature of payment and applicable rates in force. In some cases, domestic rates can be high, but DTAA may reduce the rate if documents are complete.
Q9. Can lower TDS be applied?
Yes. A lower or nil deduction certificate may be obtained under Section 395 in eligible cases. For NRI property sale, this can prevent unnecessary cash blockage.
Q10. Which forms are important after 1 April 2026?
For foreign remittance reporting, Form 145 and Form 146 are relevant in place of old Form 15CA and 15CB. For non-resident quarterly TDS return reporting, the new form is commonly mapped as Form 144 replacing old Form 27Q.
Final Takeaway
The shift from old Section 195 to the new Section 393(2) framework is not merely a numbering change. The compliance language, table references and form mapping have changed from 1 April 2026. For non-resident payments, the safest approach is to first confirm taxability in India, then check the domestic rate, DTAA rate, documents, surcharge, cess and lower deduction certificate option.
For NRI property transactions, extra care is required because the buyer becomes responsible for TDS and the deduction can be significant. A lower deduction certificate can often save major cash flow blockage for the NRI seller.