Withholding Tax rate if no DTAA

Hi Anil,

When making payments like insurance premium to non-DTAA countries (i.e., countries with which India does not have a Double Taxation Avoidance Agreement), the default withholding tax rate under the Income Tax Act applies.

Applicable WHT Rate:

• Section 195 governs withholding tax on payments to non-residents.

• If no DTAA exists, the withholding tax rate is as per the Income Tax Act provisions.

• For insurance premium paid to a non-resident (foreign insurance company), the rate is generally 10%, plus applicable surcharge and cess.

  Note: The 10% rate is derived from Section 194D, which deals with insurance commission and related payments, but for premium payments directly to foreign insurers, often 10% is considered under the head of "fees for technical services" or other applicable categories depending on the nature of payment.

Breakdown:

• Basic rate: 10%

• Surcharge: As applicable (depends on the amount and category of payee)

• Health and Education Cess: 4% on tax + surcharge

Important Points:

• If the payment is towards premium (and not commission), it’s treated as income under the head "income from other sources" or as "business income" depending on context.

• If the insurance premium payment does not qualify for any lower DTAA benefit (as no DTAA exists), then the full withholding tax as per Indian law applies.

• If you treat it as ‘fees for technical services’ or ‘royalty’, the rate would be 10%, else the rate may differ based on the nature of payment.

Suggested action:

• Verify the exact nature of the payment (premium vs commission).

• Apply the withholding tax at 10% plus applicable surcharge and cess for non-DTAA countries.

• File the TDS returns accordingly.

• Consider consulting a tax professional to confirm the classification of payment and withholding tax rate.