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A finance analyst at an Indian company is about to remit a Rs 20 lakh consultancy fee to a US-resident specialist for a project engagement. The AP head has flagged the invoice for TDS withholding under Section 195 of the Income-tax Act 1961. The question — do you withhold at the domestic 20 per cent (the Section 195 rate in force plus surcharge and cess) or at the 15 per cent India-USA DTAA Article 12 rate for fees for included services? The answer depends entirely on one document — the Tax Residency Certificate (TRC) — that the US Internal Revenue Service issues to the supplier as Form 6166. Without the TRC on file at the time of the Section 195 credit-or-payment trigger, the DTAA rate is unavailable under Section 90(4), the withholding defaults to the domestic higher-of rate, and the DTAA relief moves entirely to the payee's Indian return-of-income route with the corresponding refund claim. On the single Rs 20 lakh invoice the cash-flow gap is Rs 1 lakh; across an annual retainer the compounding is material; and a Section 201 default proceeding sits behind any short deduction that the deductor tries to remedy after the fact.
Section 90(1) of the Income-tax Act 1961 makes a Double Taxation Avoidance Agreement enforceable between India and a treaty partner. Section 90(2) allows the assessee to elect between the Act and the DTAA — whichever is more beneficial. Section 90(4) conditions the DTAA rate on the non-resident holding a Tax Residency Certificate from the foreign tax authority. Section 90A extends the same architecture to SAARC agreements. Section 195(1) is the operative deduction provision — the deductor withholds at the rates in force, which under Section 2(37A) means whichever of the Act rate or the DTAA rate is more beneficial to the assessee. Rule 21AB(1) prescribes the six particulars a TRC must contain (name, status, nationality or country of incorporation, tax identification number, validity period, foreign address). Rule 21AB(2) prescribes Form 10F as the self-declaration that fills any of the six that the foreign certificate does not itself carry. Section 206AA is the no-PAN default that pushes the withholding to the higher of the Section rate, the rate in force, or 20 per cent. Rule 37BC is the Section 206AA carve-out for a non-resident receiving royalty, fees for technical services, interest, or capital-asset transfer proceeds, where the TRC and the ancillary details unlock the DTAA or Section rate. From 1 April 2026, the Section 393 successor code applies to the Form 26Q line for the foreign remittance, but Section 90(4) and Rule 21AB continue unchanged.
An AP workflow that requires the vendor onboarding form for a foreign supplier to capture the country of tax residence, the DTAA article claimed, and the TRC validity period. A calendar-year TRC refresh reminder against every recurring foreign vendor scheduled for December, so January invoices do not default to the domestic rate. A Section 195 withholding computation working paper against every foreign remittance that carries the invoice value, the Section 195 domestic rate, the DTAA rate (with the treaty article reference and the FTS/royalty/interest/dividend classification), the TRC-on-file confirmation, the Form 10F self-declaration where the TRC does not carry all six Rule 21AB(1) particulars, and the final withholding rate applied. A Form 15CA and Form 15CB pre-remittance certificate for the outward payment, filed with the authorised dealer bank before the SWIFT is initiated. From April 2026, the Section 393(1) successor code on the Form 26Q return line and on any correction statement.
Every foreign remittance is withheld at the more beneficial of the domestic Section 195 rate and the applicable DTAA rate, with the TRC and (where needed) Form 10F on file at the credit-or-payment trigger. The Form 26Q return for the quarter shows the foreign remittance line with the correct Section code (Section 195 through 31 March 2026, Section 393 from 1 April 2026), the DTAA rate applied, and the treaty partner country reference. The Section 195 working paper for the year documents the DTAA relief taken on each remittance, and the illustrative Rs 1 lakh differential on a Rs 20 lakh consultancy fee — repeated across the year's retainer engagements — sits inside the operational cash-flow rather than as a payee refund claim from the Indian tax authority. Section 201 exposure on any short deduction is contained by the TRC-in-file discipline; the Rule 37BC carve-out is documented against every no-PAN foreign consultant so the Section 206AA 20 per cent default does not silently override the DTAA rate on paper.
You are about to remit Rs 20 lakh in consultancy fees to a US-resident specialist for a project engagement. The AP head has flagged the invoice for TDS withholding under Section 195. Someone in the tax cell asks whether you can withhold at the India-USA DTAA rate of 15 per cent under Article 12 (fees for included services) or whether you are stuck with the domestic 20 per cent Section 195 rate in force.
The answer hinges on a document you may or may not have in the file — the Tax Residency Certificate, or TRC — that the supplier’s own tax authority in the foreign country has to issue. Without it, the DTAA rate is unavailable and the higher domestic rate is what you deduct.
The quick answer
A Tax Residency Certificate is a document issued by the tax authority of a foreign country certifying that the non-resident payee is a tax resident of that country for a specified period. For the United States it is IRS Form 6166. For Singapore it is the Certificate of Residence from the Inland Revenue Authority of Singapore. For Mauritius it is issued by the Mauritius Revenue Authority.
Under Section 90(4) of the Income-tax Act 1961, the DTAA rate on a payment to a non-resident is available only where the non-resident holds a valid TRC covering the date of the payment. Without the TRC on file at the time of the Section 195 credit-or-payment trigger — whichever is earlier — the deductor is bound to the domestic higher-of rate. On the illustrative Rs 20 lakh consultancy fee, that is a Rs 1 lakh cash-flow difference (Rs 3 lakh at 15 per cent DTAA versus Rs 4 lakh at 20 per cent Section 195 rate in force) that compounds across an annual retainer engagement.
Where the TRC fits — Section 90 and Section 195
Section 90(1) of the Income-tax Act 1961 makes a Double Taxation Avoidance Agreement between India and a treaty partner enforceable in Indian law. Section 90(2) allows the assessee to elect between the domestic Act rate and the DTAA rate — whichever is more beneficial. Section 90(4) conditions that election on the non-resident holding a TRC issued by the foreign tax authority. Section 90A extends the same architecture to agreements entered into with SAARC partners.
Section 195(1) is the operative deduction provision. Any person responsible for paying to a non-resident any sum chargeable under the Act (other than salaries) deducts income-tax at the rates in force, at the time of credit or payment, whichever is earlier. Section 2(37A) defines “rates in force” for a non-resident payment as the more beneficial of the Act rate and the DTAA rate.
The two provisions read together mean the DTAA rate is available at source — but only if the TRC is on file. Miss the TRC and Section 90(4) shuts the door; the deductor withholds at the domestic Section rate, and the DTAA relief moves entirely to the payee’s Indian return-of-income route with a refund claim from the tax authority.
What the TRC must contain — Rule 21AB(1)
Rule 21AB(1) of the Income-tax Rules 1962 prescribes six particulars the TRC must carry:
- Name of the assessee
- Status — individual, company, firm, or other
- Nationality (for individuals) or country of incorporation (for others)
- Tax identification number in the foreign country (or, where no such number exists, a unique identifier)
- Period for which the residential status is applicable
- Address in the foreign country during the period the certificate is valid for
If the foreign certificate carries all six on its face, the TRC alone is sufficient. If any one of the six is missing — a common gap on US Form 6166 which is minimalist by design — Rule 21AB(2) requires the deductor to also collect Form 10F, an Indian-prescribed self-declaration signed by the non-resident payee that fills the missing particulars. Since October 2022, Form 10F must be filed electronically on the Indian income-tax portal by the non-resident (using their Indian PAN, or under the workaround for those without a PAN), rather than issued as a wet-signature paper form.
Illustrative arithmetic — the DTAA rate spread
Three worked examples for the Rs 20 lakh consultancy invoice, showing the withholding under different treaty partner scenarios:
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India-USA — fees for included services under Article 12 of the treaty is capped at 15 per cent. Withholding = Rs 3.00 lakh. Domestic Section 195 rate in force is 20 per cent plus applicable surcharge and cess. The DTAA rate is the more beneficial option.
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India-Singapore — fees for technical services under Article 12 of the treaty is 10 per cent. On the same Rs 20 lakh, withholding = Rs 2.00 lakh. The differential against the domestic rate is Rs 2 lakh on a single invoice, so the DTAA path is materially cheaper.
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India-Mauritius — interest on debt claims under Article 11 of the treaty is capped at 7.5 per cent on interest on debt in force before the 2016 protocol; capital gains on shares acquired after 1 April 2017 are taxable in the source state under the amended protocol. The treaty-specific caps have to be read alongside the protocol history — a generic “DTAA rate” applied without protocol verification is a common Section 201 exposure.
The DTAA rates are inclusive — no surcharge, no cess, no additional levy — while the domestic Section 195 rate in force carries surcharge and cess on top. The cash-flow gap the deductor is protecting through the TRC-on-file discipline is therefore materially larger than the headline rate spread would suggest.
The Section 206AA trap — where the TRC does double duty
Section 206AA overrides every other TDS provision. If the payee — resident or non-resident — does not furnish a valid PAN to the deductor, the withholding defaults to the higher of the Section rate, the rate in force, or 20 per cent. A non-resident consultant who has no Indian PAN (and, absent a permanent establishment in India, has no operational reason to obtain one) falls into this default.
Rule 37BC is the statutory carve-out. For a non-resident receiving royalty, fees for technical services, interest, or a payment on transfer of a capital asset, the Section 206AA default is suspended if the deductor holds — the TRC from the foreign tax authority (or an equivalent alternate identification where the foreign jurisdiction does not issue one); the payee’s name, e-mail, and contact number; the payee’s foreign address; and the payee’s foreign tax identification number.
The TRC therefore does two things at once for the no-PAN foreign consultant. It unlocks the DTAA rate under Section 90(4). And it unlocks the Rule 37BC exception under Section 206AA that stops the withholding defaulting to 20 per cent. Miss either document — TRC or the Rule 37BC ancillary details — and the withholding defaults to the higher of the Section rate or 20 per cent, regardless of the DTAA rate on paper. The Section 206AB and 206CCA higher-rate withholding walkthrough covers the reciprocal higher-rate machinery for non-filer counterparties, which is a different (and equally common) higher-rate trigger to sit alongside the Section 206AA no-PAN default.
The one to escalate first — TRC missing at credit time
Bucket the entire foreign-vendor spend by TRC status. Vendors with a valid TRC covering the current financial year go into the DTAA-eligible queue. Vendors with an expired TRC (a calendar-year TRC that expired on 31 December of last year, with the January invoices already in the AP queue) go into the immediate-refresh queue. Vendors with no TRC on file go into the domestic-rate-withholding queue and stay there until the TRC lands.
The escalation is chronological — every invoice sitting in the AP queue with a payment authorisation flag but no TRC on file is an invoice about to be paid at the domestic rate. Once the Section 195 credit or payment happens — whichever is earlier — the DTAA rate is lost at source. The payee can still claim the DTAA relief through a return of income under Section 139 read with Section 90, and the refund route in Chapter XIX is available, but the deductor’s cash-flow gap is fixed for the invoice.
The single-highest-leverage control is a December TRC-refresh sweep against every recurring foreign vendor, so January invoices do not silently slip into the domestic-rate queue.
Form 15CA and Form 15CB — the pre-remittance certificate
Before the SWIFT is initiated, the deductor files Form 15CA (a self-certification of the tax character of the payment) with the Indian income-tax portal, and — for payments above the Rs 5 lakh threshold or otherwise as prescribed — a Form 15CB certified by a chartered accountant that certifies the DTAA rate applied and the Section 195 withholding computed. The authorised dealer bank will not release the outward SWIFT without the acknowledgement of Form 15CA. The Form 15CB in turn requires the CA to reference the TRC and the Form 10F, which is the audit-trail bridge between the vendor-onboarding file and the outward remittance.
The Form 26Q line for the quarter carries the deductee row for the foreign remittance under the Section 195 payment code through 31 March 2026, and under the Section 393(1) successor code from 1 April 2026 — see the TDS payment codes 1001 to 1092 reference for the cross-era mapping and the Section 393 payment code finder for a direct code lookup by legacy Section reference.
Where the TRC discipline surfaces in an industry context
For a chemicals exporter that engages a REACH-only representative in the European Union under a retainer, or an Indian pharmaceutical firm remitting to a US clinical research organisation, or an IT services company paying a Singapore-based sub-contractor, the TRC discipline is a recurring monthly control rather than a one-off event. The REACH-only representative or retainer chemicals reconciliation walkthrough is the deeper treatment of the Section 195 DTAA case for a chemicals-industry outbound retainer, including the annual reconciliation between the Form 26Q quarterly returns and the ledger record of the outward remittances.
When the manual TRC tracking outgrows itself
A small Indian company with fewer than ten foreign vendors, all on annual retainer, can hold the TRC tracking in a single spreadsheet — vendor name, country, TRC validity period, Form 10F on file yes/no, next refresh date. The AP head refreshes it in December alongside the calendar-year rollover and the discipline holds.
A mid-market company with fifty-plus foreign vendors across multiple treaty jurisdictions, mixed calendar-year and fiscal-year TRC validity, ad-hoc engagements alongside annual retainers, and a Rule 37BC ancillary-detail track for the no-PAN population, is running a rolling exception queue that a spreadsheet cannot hold reliably. The exposure is not a single-invoice miss but the compounding of many DTAA-rate defaults into domestic-rate withholdings that the payees do not chase (because the return-of-income route in India is administratively costly for a small refund), leaving the differential permanently on the deductor’s cash-flow.
At that scale, moving the TRC validity queue, the Form 10F and Rule 37BC ancillary detail track, and the Section 195 versus DTAA rate computation onto continuously refreshed detection — where Terra Insight’s TDS reconciliation software treats the foreign-remittance withholding matrix as a first-class monthly output rather than a spreadsheet the AP head refreshes on demand — is what keeps the DTAA relief inside the operational cash-flow and closes the Section 201 exposure on the short-deduction tail. Below that scale, the December-sweep spreadsheet is the right tool and the discipline of running the TRC refresh by hand is what builds the reconciler’s judgement for when scale demands the shift.
Go deeper
- TDS payment codes 1001 to 1092 — the Section 393(1) cross-era coding table
- Section 206AB and 206CCA — the higher-rate withholding for non-filer counterparties
- REACH-only representative or retainer — the Section 195 DTAA reconciliation for a chemicals exporter
- Section 393 payment code finder — direct code lookup by legacy Section reference
- TDS reconciliation software for India
Frequently Asked Questions
What actually is a TRC, and who issues it?
A Tax Residency Certificate is a document issued by the tax authority of a foreign country (not by the Indian tax authority) that certifies the non-resident payee is a tax resident of that country for a specified period. In the United States it is issued as Form 6166 by the IRS. In Singapore it is issued by the Inland Revenue Authority of Singapore. In Mauritius it is issued by the Mauritius Revenue Authority. Rule 21AB(1) prescribes the six particulars the TRC must contain — name, status, nationality or country of incorporation, tax identification number in the foreign country, the period the certificate is valid for, and the address in the foreign country. Where any of these six is not covered on the face of the foreign certificate, Form 10F is filed as an Indian self-declaration to fill the gap. The TRC plus (where needed) Form 10F together satisfy Section 90(4), which is the precondition for applying a DTAA rate rather than the domestic Section 195 rate.
The supplier has not sent the TRC before the payment date. Can I still apply the DTAA rate?
No. The DTAA rate under Section 90(4) is available only where the deductor holds the TRC in the file at the time of the Section 195 deduction — the credit-or-payment-whichever-is-earlier trigger. If the TRC is received after the payment has been remitted and the deduction has been made at the domestic higher-of rate, the DTAA rate cannot be substituted retroactively at source. The non-resident payee can still claim the DTAA relief in a return of income filed in India (Section 139 read with Section 90), but the deductor’s Section 195 obligation is fixed at the domestic rate and the differential — deducted, deposited, reported — sits in the deductor’s TDS return as filed. The operational fix is to build the TRC-collection step into the AP workflow before the payment authorisation, not after. A missing TRC at credit time means either delay the payment until the TRC lands or accept the higher withholding and let the payee reclaim the differential themselves.
The India-USA DTAA says fees for included services (FIS) are taxed at 15 per cent. Section 195 says the rate in force is 20 per cent plus surcharge and cess. Which applies?
Where the TRC is on file, the more beneficial of the two rates applies — the 15 per cent India-USA Article 12 rate for the US-resident consultant supplying fees for included services beats the 20 per cent domestic rate, so 15 per cent is what you withhold. The DTAA rate is inclusive — no surcharge, no cess, no additional levy. On a Rs 20 lakh gross consultancy fee, the DTAA withholding is Rs 3 lakh (15 per cent) rather than the domestic Rs 4 lakh (20 per cent plus applicable surcharge and cess) — a Rs 1 lakh cash-flow difference on a single invoice that compounds across an annual retainer. Without the TRC on file, the deductor is bound to the domestic rate under Section 90(4), and the DTAA relief moves entirely to the payee’s return-of-income route with a corresponding refund claim from the Indian tax authority.
Does the TRC also help if the supplier has no Indian PAN?
Yes, but only for a specific list of payment types. Section 206AA defaults the withholding on any TDS payment to a payee without an Indian PAN to the higher of the Section rate, the rate in force, or 20 per cent. Rule 37BC carves out an exception for a non-resident receiving royalty, fees for technical services, interest, or a payment on transfer of a capital asset — where the deductor holds the TRC (or, for a country that does not issue such a certificate, the alternate identification), the deductee’s foreign address, foreign tax identification number, name, e-mail, and contact number, the Section 206AA default is suspended and the DTAA or Section rate applies. The TRC-plus-Form-10F combination is therefore doing two jobs at once for a no-PAN foreign consultant — it unlocks the DTAA rate under Section 90(4) and it unlocks the Rule 37BC exception under Section 206AA. Miss either document and the withholding defaults to 20 per cent under Section 206AA regardless of the DTAA rate on paper.
How long is a TRC valid for, and do I need a fresh one every year?
The validity period is on the face of the TRC itself under Rule 21AB(1)(v) — the certificate specifies the period for which the residential status is applicable. Most foreign tax authorities issue TRCs for one financial year (calendar year, in some jurisdictions), and the deductor must hold a TRC that covers the specific date of the Section 195 deduction. A US Form 6166 issued for calendar year 2026 covers payments made between 1 January 2026 and 31 December 2026 to that US-resident payee. A Singapore certificate of residence issued for calendar year 2026 works the same way. Where the payment straddles two calendar years, the deductor needs the TRC covering the year of the deduction — a payment on 15 January 2027 to a US-resident whose 2026 TRC has expired cannot claim the DTAA rate on the 2027 leg. The AP workflow should embed a TRC-refresh reminder in December each year for every recurring foreign vendor, so the January invoices do not slip through the domestic higher-of default.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 90(4), Income-tax Act 1961 — An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. Section 90(1) is the enabling provision for a Double Taxation Avoidance Agreement (DTAA); Section 90(4) is the operative provision that conditions the DTAA rate on the non-resident holding a Tax Residency Certificate (TRC) issued by the foreign tax authority. Without the TRC in the deductor's file at the time of the Section 195 withholding, the DTAA rate is unavailable and the domestic rate applies.
- ▸ Rule 21AB, Income-tax Rules 1962 — The certificate referred to in sub-section (4) of Section 90 and sub-section (4) of Section 90A to be produced by an assessee for obtaining the benefits of the agreements referred to in the said Sections shall contain the following particulars, namely — name of the assessee; status (individual, company, firm) of the assessee; nationality (in case of individual) or country or specified territory of incorporation or registration (in case of others); assessee's tax identification number in the country or specified territory of residence and in case there is no such number, then a unique number on the basis of which the person is identified by the Government of that country or specified territory of which he claims to be a resident; period for which the residential status, as mentioned in the certificate, is applicable; and address of the assessee in the country or specified territory outside India, during the period for which the certificate is applicable. Sub-rule (2) requires the assessee to also provide Form 10F where any of the six particulars is not covered in the certificate — Form 10F is a self-declaration that fills the gaps.
- ▸ Section 195(1), Income-tax Act 1961 — Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194LB or Section 194LC or Section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. The rates in force means whichever is more beneficial to the assessee — the rate under the Act or the rate under the applicable DTAA. The DTAA rate applies only where Section 90(4) is satisfied, meaning the non-resident holds a valid TRC for the year of payment.
- ▸ Section 206AA, Income-tax Act 1961 — Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVII-B, shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the higher of the rates specified in the relevant provision of this Act, or at the rates in force, or at twenty per cent. Where the non-resident payee does not furnish a PAN, the Section 195 withholding defaults to the higher of the Section rate, the rate in force, or 20 per cent. Rule 37BC provides relief on this default rate for a non-resident receiving royalty, fees for technical services, interest, or dividend where certain particulars (including the TRC) are furnished.
- ▸ Rule 37BC, Income-tax Rules 1962 — In the case of a non-resident, not being a company, or a foreign company, and not having a Permanent Account Number, the provisions of Section 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services, and payments on transfer of any capital asset, if the deductee furnishes to the deductor the following details, namely — name, e-mail id, contact number; address in the country or specified territory outside India of which the deductee is a resident; a certificate of his being resident in any country or specified territory outside India from the Government of that country or specified territory if the law of that country or specified territory provides for issuance of such certificate; and Tax Identification Number of the deductee in the country or specified territory of his residence and in case no such number is available, then a unique number on the basis of which the deductee is identified by the Government of that country or specified territory of which he claims to be a resident. Rule 37BC is the statutory route out of the Section 206AA 20 per cent default for a non-resident who cannot provide an Indian PAN — the TRC plus Form 10F combination is what unlocks the Section rate or the DTAA rate.
- ▸ Section 393, Income-tax Act 2025 — The Income-tax Act 2025, effective 1 April 2026, consolidates the tax deduction provisions of the Income-tax Act 1961 into Section 393. Payments to non-residents that were governed by Section 195 of the 1961 Act carry the Section 393(1) successor payment code from Q1 FY 2026-27 onwards. The DTAA-versus-domestic-rate comparison and the TRC requirement carry across the migration unchanged — Section 90(4) and Rule 21AB continue to apply — but the correction statement coding on TRACES and the Form 26Q line for a foreign remittance from April 2026 onwards use the Section 393 code rather than the Section 195 code.