India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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Rohit Khuranna

The Directorate General of Foreign Trade (DGFT) is committed to facilitating exports and imports, focusing on efficient, transparent, and accountable delivery systems. Hence, the DGFT has implemented an upgraded Electronic Bank Realisation Certificate (eBRC) system to enhance trade facilitation for exporters.

The enhanced eBRC system is based on the streamlined processing of electronic Inward Remittance Messages (IRMs) transmitted directly by banks to DGFT. Under this system, exporters are empowered to self-certify their eBRCs based on the IRMs received. This move intends to reduce transaction time and costs for exporters, simplify the reconciliation process for banks, and promote a more business-friendly environment.

Pilot launch of the improved e-BRC system

The DGFT had proposed a soft launch of the enhanced eBRC system from November 15, 2023. For this, banks will set individual cut-off dates based on their readiness after completing User Acceptance Testing (UAT). Both the upgraded and legacy eBRC systems will run simultaneously until all the banks transition to the improved system.

Banks have been asked to transition through mandatory API integration for prompt data exchange by January 31, 2024. The DGFT website will host a list of banks with their respective IRM cut-off dates.

Streamlined Workflow of the Enhanced e-BRC System

Previously, the Bank Realization Certificate (BRC) was processed manually. Exporters were required to submit a physical copy of the BRC to the relevant Regional Authority of the Directorate General of Foreign Trade (DGFT). Subsequently, export transaction details from the BRC were manually entered, resulting in a time-consuming and complex procedure for claiming export incentives.

DGFT introduced the eBRC Module to promote paperless trade—a unified platform facilitating the direct electronic transmission of <a href="https://www.skydo.com/blog/forex-and-its-impact?https://www.skydo.com/blog/forex-and-its-impact">Foreign Exchange</a> Realization Information from Banks to DGFT’s server. Incorporating digital certificates adds an extra layer of security to this process.

With the implementation of the eBRC system, exporters are no longer compelled to visit their banks for a Bank Realization Certificate. This has significantly streamlined the process of claiming export incentives and benefits from DGFT and other relevant export agencies, making it more accessible for exporters.

The revamped eBRC system follows a structured workflow:

The enhanced Electronic Bank Realisation Certificate (e-BRC) system offers several benefits for exporters and stakeholders, including:

The enhanced e-BRC system offers a more modern, efficient, and user-centric approach to the certification process, contributing to a smoother export documentation experience for businesses.

<a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/pilot-launch-of-upgraded-electronic-bank-realisation-certificate-system-for-exporters-from-nov-15/articleshow/105185227.cms">According to Sanjay Budhia, the Chairman of the CII National Committee on EXIM and Managing Director of Patton Group</a>, "This will help exporters and banks optimize their resources and cut costs. Over the years, DGFT has almost completely automated its processes, and now, with this new step, exporters can fully focus on enhancing exports and achieve our targeted goal of USD 2 trillion of exports by 2030."

To read more about e-BRC, check out <a href="https://www.skydo.com/blog/what-is-e-BRC?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">this</a> blog.

Ans: You can follow the below steps to check the status of your e-BRC:

Q2. How to download eBRC from the DGFT website?

Ans: You can follow the below steps to download your e-BRC from the DGFT website:

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Tax Deducted at Source (TDS) on international payments in India is applicable when payments are made to non-residents. The rates of TDS and the specific provisions governing international payments are outlined in Section 195 of the Income Tax Act.

However, certain factors can allow you to reduce the TDS, which you will learn in this blog.&nbsp;

Nature of payments and applicable rates: DTAA

DTAA is particularly relevant in international transactions, where income may be subject to taxation in both the source countries. DTAA covers the following categories:&nbsp;

The rates depend on the tax treaties agreed upon by the two countries. The TDS rates on interest earned range from 7.50% TO 15%.&nbsp;

What is the TDS return for foreign payments?

Under section 195, it is mandatory for any person making foreign payments to a non-resident to obtain a TAN and deduct tax at applicable rates. Once deducted, the payer must deposit the tax with the government against the payee's PAN.&nbsp;

Furthermore, the payer must also fill out a TDS return using Form 27Q, which is a declaration of TDS deducted on payments other than salary to non-residents.&nbsp;&nbsp;

Strategies to Reduce TDS on International Payments

Here are the strategies to reduce TDS on international payments and ensure that you decrease the cost of international payments:&nbsp;

Section 195 of the Income Tax Act Of 1961 details the TDS provisions in case of an Indian resident making a payment by way of interest or any other amount to an NRI or foreign company. Here, the payment amount should be other than salary, and there is no threshold limit to deduct TDS under the section.&nbsp;

TDS is deducted at either of the following rates:&nbsp;

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) Changes from 1st July 2023

It is important to check the latest notifications and updates from the tax authorities to stay informed about any changes to due dates or procedures related to TDS filings. Compliance with TDS regulations is critical for avoiding penalties and maintaining a smooth relationship with tax authorities.

The Income Tax authority can levy a minimum penalty of Rs 10,000 and a maximum penalty of Rs 1,00,000 for non-payment of TDS in a timely manner.&nbsp;

In conclusion, managing <a href="https://www.skydo.com/blog/minimise-TDS-foreign-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Tax Deducted at Source (TDS)</a> on international payments requires financial efficiency and a nuanced understanding of the Income Tax Act, Double Taxation Avoidance Agreements (DTAA), and relevant tax provisions. If you have any confusion, it is better to contact a tax professional.&nbsp;

Q1. Is TDS applicable for foreign payments?

Ans: Under section 195, TDS applies to foreign payments to non-residents.&nbsp;

Q2. How do you deduct TDS for international contractors?

Ans: Although it is mandatory to deduct TDS on international payments Under Section 195, there are some conditions when it comes to deducting TDS for international contractors. If you are making payments to foreign entities, such as individuals/companies located outside India, you are not required to deduct their TDS.&nbsp;

In such a case, the foreign entities are required to register on the income tax portal as "others" and file form 10F online along with their tax residency certificate. Once it is filed, they must share the form with you for further reference.&nbsp;

Q3. What are the potential consequences of non-compliance with TDS regulations on global transactions?

Ans: Non-payment of timely TDS can result in a minimum penalty of Rs 10,000, which can go up to Rs 1 lakh.&nbsp;

Q4. Are there industry-specific considerations for reducing TDS on international payments?

Ans: Yes, as TDS rates depend on the nature of payment, different industries may have specific types of transactions, revenue models, and contractual arrangements that can influence the approach to managing TDS.

Q5. Can businesses or individuals leverage specific thresholds or exemptions to reduce TDS?

Ans: There are numerous thresholds and exemptions available under section 195 that can be utilized to reduce TDS.&nbsp;

How to Reduce TDS on International Payments

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An exchange rate is the rate or value at which one currency can be exchanged for another. When a layman tries to exchange their currency from dollars to rupees, they might go to a bank or sign up through an online intermediary. If you have tried to exchange your current currency from a bank, you might have noticed that the conversion rate charged by the banks may be higher than the number they previously showed.

However, the same does not apply to some online intermediaries like Skydo, and this is because we provide customers with a live foreign exchange rate. A live FX rate, unlike bank rates, is updated in real-time. So why do bank rates become more expensive than live FX rates, and how does this impact you?

Why bank exchange rates are different from the live FX rates?

Banks trade currencies with customers, as well as each other. However, the rates for both differ– the bank exchange rate is applied when banks are trading with customers, and the interbank rate applies when banks are trading with each other.&nbsp;

The interbank rate is more of a wholesale rate since banks trade with each other currencies in bulk. However, a regular consumer pays a small fee over and above paying the exchange rate. For example, if the interbank rate for buying USD is 1.00, the bank exchange rate for customers to buy USD will be 1.03.&nbsp;

Similarly, if a customer tries to sell USD, the rate offered to them will be 0.97. In each case, the bank earns 0.3 cents for acting as a middleman and helping you facilitate currency exchange. This 6-cent difference is known as the spread, to earn a profit from forex activities.&nbsp;

However, just like the currency, the spread is not constant. Various factors affect the increase or decrease in a forex spread, including the transaction amount itself. Banks charge a lesser spread for larger forex transactions to encourage bulk transactions.&nbsp;

A lower transaction amount might mean you end up paying a larger proportion of the amount in bank charges. Similarly, banks might have a smaller spread for frequently exchanged currencies and charge a larger spread for rarer currencies.

In addition to the spread, banks might charge a flat transaction fee or a certain percentage of the transaction for exchanging currency. This fee, too, is charged to drive profits.

Banks charge fees to secure themselves against currency risks (that might occur due to factors like war, inflation in other countries, or major political changes). Extra charges such as flat fees help banks achieve this while assuming less risk.&nbsp;

Banks have higher operational expenses of handling and processing cash than online brokers and intermediaries. Hence, online intermediaries pass on the cost savings to you in the form of lower fees.

The exchange rate market is highly volatile and is affected by global macroeconomic factors, other than simple demand and supply. Banks need to account for potential losses by adjusting their spread.&nbsp;

Currencies expected to depreciate or lower in demand usually see an increase in their spread for banks to mitigate their losses.&nbsp;

Indian banks must adhere to the rules of the Reserve Bank of India. These rules might be related to bank rates, insuring against risk, and adherence to them increases compliance costs. To some extent, these costs are borne by customers when they pay a transaction fee or a higher spread.&nbsp;

The RBI’s rules are subject to change depending on global factors and its own estimation of the supply and demand in India, which means the transaction fees are dynamic and never fixed.&nbsp;

How Skydo Can Help You to Save Your Money

Compared to this, carrying out your foreign exchange transaction using a service like Skydo can benefit you.

How, you ask? We operate on <a href="https://www.skydo.com/blog/get-the-most-out-of-your-forex-savings-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">live FX rates</a> and charge zero margins or hidden transaction charges. Yes, you read that right. Unlike the volatile transaction fees, spreads, and other charges levied by banks, Skydo has a flat fee and provides a <a href="https://www.skydo.com/blog/get-the-most-out-of-your-forex-savings-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">transparent pricing system</a>.

Similarly, our clear and easy-to-understand thresholds inform you of exact costs compared to the ever-changing bank rates that regularly need a cost-benefit analysis.&nbsp;

Some of our other important features include:

In short, in an age of convenience and quick transactions, going through a bank to exchange your currency might be an outdated solution for your business needs. Recognizing the benefits that a service like <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> can provide is important for your convenience but crucial to financial operations.&nbsp;

Our user-friendly interface helps you instantly set up an account, create invoices, and start doing transactions in no time. Businesses doing bulk forex transactions may save up to Rs 10 lakh annually, among other benefits.

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Book a free demo</a> to experience fast, cost-saving, and transparent cross-border payment experiences.&nbsp;

Ans: An exchange rate is the rate at which one currency can be converted into another. For example, the exchange rate to convert rupees into dollars can be 1 Re= 83 USD.

Q2. What fees do banks charge for currency exchange?

Ans: Multiple factors compel banks to charge different types of rates to exchange currencies. The spread is a charge levied to cover the cost of exchanging the currency as a broker. There are also flat fees or a percentage of the transaction charged for banks to cover operational costs, handling fees, etc. Charges to ensure safety against risk and compliance with RBI guidelines are other reasons banks charge a lot.

Q3. What is the difference between an exchange rate and the real effective exchange rate?

Ans: An exchange rate is the rate used to convert one currency from another. The Real Effective Exchange Rate (REER) gauges the value of a country's currency in relation to a weighted average of the currencies of countries that are its primary or general trading partners. While the exchange rate is a straightforward measure, the REER is much more comprehensive and shows how a nation’s exchange rate holds up compared to other countries while also considering the inflation rates.

Ans: NEER, also known as the Nominal Effective Exchange Rate, measures how a country’s exchange rate holds up against other foreign currencies. Real Effective Exchange Rate, or REER, on the other hand, is a comprehensive measure because it also accounts for the price level, inflation rates, and other factors.&nbsp;

Ans: Several factors, such as demand and supply of the particular currency, global conditions such as war or famine, political stability, central bank interventions and policies, and interest rates, determine a country’s exchange rate.

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Picture this: you're running a successful export business, orders are flowing in, and everything seems smooth until you realise your invoice management system is no longer compliant.&nbsp;

India's GST framework now mandates e-invoicing for businesses above certain turnover thresholds - and if your annual aggregate turnover exceeds ₹5 crore, you must generate e-invoices for all B2B transactions and exports. Not generating valid e-invoices can lead to non-compliance, penalties, and delayed input credits.&nbsp;

This guide explains how e-invoicing applies to exporters, outlines the necessary steps, and provides guidance on automating the entire process.&nbsp;

E-Invoicing involves uploading your invoice details to a government portal, which provides you with a unique ID number and a QR code to verify the authenticity of your invoice.

You create invoices the same way you always have, using your accounting software or billing system. The difference is that now you need to send the invoice data to the <a href="https://einvoice5.gst.gov.in/index">Invoice Registration Portal (IRP)</a> for verification.&nbsp;

Any GST-registered business with an annual turnover above ₹5 crore must generate e-invoices for B2B transactions. This includes all export transactions, whether you're selling goods or services to customers outside India.

All business-to-business invoices for both goods and services. If you're exporting anything from software to steel, from consulting services to consumer products, electronic invoicing applies.

The primary benefit is that your invoice information is automatically transmitted to the GST portal and e-way bill portal. This means that when you file your monthly GSTR-1 return, most details are filled in automatically, eliminating the need for manual data entry. It saves time once the process runs smoothly.

Does e-Invoicing Apply to Exporters? (2025 Thresholds)

The short answer is yes - most exporters doing decent business volume will need to comply with e-invoicing requirements.

You must generate e-invoices for exports if:

Remember that this threshold applies to your total business turnover, not just export sales. So even if your exports are small, if your domestic plus export sales together exceed ₹5 crore, e-invoicing becomes mandatory for all your B2B transactions, including exports.

What are the Consequences of Skipping e-Invoicing for Exporters?

Skipping e-invoicing creates real problems that can seriously impact your export business:

Getting your export e-invoice format right the first time saves you unnecessary amendment issues later. Here's what every export e-invoice needs to include:

💡Tip: Don't let missing shipping bill details delay your invoicing. You can generate the e-invoice first using the electronic invoice system and update shipping bill information later through the amendment process.&nbsp;

This keeps your cash flow moving while ensuring compliance. Just remember to update those details once you receive shipping documentation to maintain complete records.

Step-by-Step: How to Generate an e-Invoice for Exports

Getting your first export e-invoice up and running feels overwhelming, but it's actually a simple five-step process:

Step 1: Create the invoice in your billing software or ERP

Generate your export invoice as you normally would (make sure to add invoice number), ensuring that you mark the invoice type as "Export" and include all required details, such as foreign buyer information. Most modern accounting software has been updated to handle e-invoices and mandatory fields, but double-check that yours captures shipping bill numbers and export-specific data.

Step 2: Push it to the Invoice Registration Portal (IRP) via direct API integration or manually

Upload your invoice data to an authorized IRP. You can accomplish this through API integration, if your software supports it, or manually via the web portal. The system will validate your invoice details against the GST rate database and check for any errors in real-time.

Within seconds, the IRP sends back your unique Invoice Reference Number and QR code. Add these to your original invoice - this makes it a valid e-invoice under GST law.

Step 4: Share with the client and use for filing GSTR-1

Send the updated invoice with IRN and QR code to your customer. The invoice data automatically flows to your GSTR-1, so monthly filing becomes much easier with pre-populated export details.

Step 5: Use it while applying for export refunds or generating eBRC

When claiming GST refunds or obtaining your Electronic Bank Realization Certificate, please reference your IRN. Banks, tax experts, and authorities use this to verify legitimate export transactions quickly.

💡Pro tip: Ask your accountant or software vendor if your current system is IRP-compliant. Many businesses save time by using integrated e-invoicing platforms that automate steps 2 and 3.

Tools That Simplify e-Invoicing for Exporters

Managing e-invoicing manually gets difficult, especially when you're juggling multiple export orders. Here are a few bulk generation tools to help you out:&nbsp;

<a href="https://gstn.org.in/gsp-ecosystem">GST Suvidha Providers (GSPs)</a> with export invoicing modules

These government-approved providers offer specialized export features beyond basic e-invoicing. They understand export documentation requirements and often include features like automatic shipping bill integration and FEMA compliance checks.

Popular accounting software, such as Tally, Zoho, Busy, and Marg, has built-in e-invoicing capabilities. Once set up, they automatically push invoice data to IRP and retrieve the IRN and QR code without requiring any manual intervention. This works well if you're already using these systems for your accounting.

Custom-built tools for SaaS exporters and MSMEs

Many exporters, particularly in the services sector, require solutions that extend beyond traditional accounting software. These application service providers are specifically designed for digital businesses and address the unique challenges of service exports.

Platforms like Skydo that auto-generate compliant GST invoices

Some fintech platforms combine payment processing with invoicing compliance. Skydo, for instance, creates GST-compliant invoices automatically when you receive international payments, handles <a href="https://www.skydo.com/blog/automated-firc-simplifying-international-payments-compliance">FIRA</a> generation instantly, and provides real-time payment tracking. This approach works particularly well for freelancers and service exporters who want everything integrated - from invoicing to payment receipt to compliance documentation.

Export payments shouldn't be complicated. Skydo streamlines the entire process by automatically generating GST-rate-compliant e-invoices when you receive international payments. You get instant FIRA generation, zero FX margins, and real-time payment tracking - all in one platform.

Instead of juggling separate tools for invoicing, compliance, and payments, Skydo handles everything seamlessly. Perfect for service exporters, freelancers, and MSMEs who want to focus on growing their business rather than wrestling with paperwork. The platform integrates e-invoicing compliance with actual payment processing, allowing you to stay compliant while receiving payments faster and at a lower cost than traditional banking routes.

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TDS on foreign remittance keeps many Indian business owners awake at night.&nbsp; Questions like: Do I need to deduct TDS while paying a foreign vendor? Should I worry if my US client doesn’t deduct TDS while paying me? Keep circling in their head.&nbsp;

If that sounds relatable, this blog will be your single source of truth for all things TDS on foreign payments. We’ll provide detailed and jargon-free answers to tell you exactly when TDS applies, who needs to apply, and how to avoid costly mistakes.

TDS on Foreign Payments: What Does It Actually Mean?

TDS (Tax Deducted at Source) is a system used by the government to collect tax at the point where income is paid. Under Section 195 of the Indian Income Tax Act, if you’re an Indian resident or a non-resident making a payment to a foreign vendor or a Non-Resident, and if that income is taxable in India, you’re required to deduct the TDS before transferring the amount. There are a few exceptions to this rule, like the salary paid to a foreign individual.&nbsp;&nbsp;

But you have to deduct TDS when you pay an annual licensing fee to a software vendor based in the US. For example, your design team uses the Adobe Photoshop premium license to design various assets. Adobe Inc. is a USA-registered company, so TDS will apply to it. If the annual license costs $10,000, you must deduct 10%, i.e. $1,000 as TDS. The purpose of this system is to keep track of cross-border payments and prevent tax evasion.

But the real challenge for export-focused businesses and freelancers is knowing which payments actually require TDS. Do all outgoing payments attract TDS? The answer is no. It depends on multiple facets. Here’s a small table to show you when the TDS will be applicable:

If You’re Receiving Foreign Payments – Does TDS Apply?

TDS is not deducted on incoming payments. When you get paid by a foreign client, they may not deduct tax on the amount. Why?

1. Your income accrues in India:&nbsp;This means you are providing goods or services to foreign clients from India and earning money from it. Therefore, it will be treated as income earned and accrued in India

2. The Indian tax laws do not govern your foreign clients. They are not required to comply with Indian TDS provisions because they operate outside India’s tax jurisdiction.&nbsp;

3. As an Indian resident, you’re responsible for declaring your income and paying tax to the Indian government, not your client.

Keep your documents well-organised and thoroughly check them so that you receive the payment from your foreign client without hiccups. For example, always use the correct purpose code. You can always refer to a<a href="https://www.skydo.com/blog/rbi_purpose_code_for_inward_remittance"> Purpose Code finder</a> if you’re not sure which one applies to your business. Likewise, keep your invoices, GST details, and <a href="https://www.skydo.com/blog/automated-firc-simplifying-international-payments-compliance">Foreign Inward Remittance Advice (FIRA)</a> accessible.&nbsp;

We will cover these documents in more detail in the later part of the blog

TDS Rates on Foreign Payments (2025 Update)

The TDS rate depends on the nature of the payment and whether the Double Taxation Avoidance Agreement (DTAA) applies. We will get to the meaning of DTAA in a bit. 

Before that, let’s take a look at some of the TDS rates for foreign payments to a US vendor. The final applicable TDS rate is the lower of the TDS rate mentioned in the Finance Act and the DTAA.

 If the TDS rate according to the Finance Act is lower, then the final rate is calculated as TDS rate + Surcharge + Cess (0.4% of TDS rate + Surcharge)

The Double Taxation Avoidance Agreement (DTAA) is a treaty India signs with other countries, so you don’t have to pay tax twice on your earnings. At present, India has signed DTAA with 85+ countries. 