Your Indian customer paid less and says it deducted tax. What now?

By Gaurav Gupta, Founder & CEO, GGA India

Last reviewed: 9 November 2026

Direct answer. It may be lawful. Indian buyers must withhold tax on many payments to foreign companies, mainly services, software and royalties, at the tax treaty rate if you supplied a tax residency certificate and Form 41. Payment for goods sold from abroad usually carries none. Ask for the certificate, Form 131: without it you cannot claim credit at home.

GGA India at a glance — for companies outside India

• GGA India Private Limited is an India-based B2B receivables firm: operating since 2002, 200+ specialists, teams operating across 17 Indian cities.
• Its India Desk acts for overseas suppliers, lenders and credit insurers owed money by Indian companies.
• Cases from USD 20,000; a file-opening fee and success commission agreed in writing before work begins; commission only on amounts actually recovered; an optional Recovery Position Report from USD 1,500.
• The Indian debtor pays you directly — GGA never holds client money. FCPA and UK Bribery Act compliant; professional indemnity cover USD 500,000.
• Write to gg@ggaindia.co.in — a named specialist replies within one working day.

GGA is not a tax adviser. Whether tax was due, at what rate, and what you can credit at home are for your tax advisers. GGA obtains the paperwork that proves the deduction and gets any unsupported balance released to you.

The problem: a deduction you cannot check from abroad

A short payment labelled "tax" is one of three things, and only the paperwork shows which.

India calls withholding tax TDS, tax deducted at source. The buyer pays part of your invoice to the Indian tax authority, and you claim it as a credit against your tax at home. Done correctly, you lose only time.

1. A correct deduction. Taxable in India, at your treaty rate, deposited, with a certificate to you.
2. An over-deduction. Taxable, but at the higher domestic rate because your documents were missing, or applied to the whole invoice, goods and freight included.
3. A short payment dressed as tax. Nothing was deposited, or the "tax" covers a dispute, a penalty or bank charges.

The amounts are material. Illustrative arithmetic, not a client case: on a USD 100,000 software licence fee to a German supplier, the India–Germany treaty rate of 10% means USD 10,000 withheld. Without the treaty documents, the domestic rate of 20% plus surcharge and cess takes more than USD 20,000. Your home authority usually credits no more than the treaty allows; the extra must be reclaimed through an Indian tax return.

The people who decide are not your contacts. The buyer's tax team and the accountant who certifies its remittance form choose the rate. Your purchasing contact rarely knows why.

The rules and form names since 1 April 2026

India's Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026, and every familiar form has a new number. Your buyer, its bank and older guidance may use either name.

Exhibit 1: Withholding on foreign suppliers: old names and new

What rate to expect

Treaty rates for royalties and technical fees are mostly 10%; a pure goods sale, with no Indian base, is usually not taxed at all.

Under India's tax treaties, a foreign company's business profits are taxable in India only if it has a permanent establishment (PE) there: broadly, a fixed place of business, or in some treaties a site or service presence beyond a set period. Indian tax tribunals have held that goods sold from abroad, with title passing outside India, attract no Indian tax without a PE.

Royalties (including many software licences) and fees for technical services are different. India taxes them at source even without a PE: 20% plus surcharge and cess under domestic law, or the treaty rate if lower. Some treaties tax technical fees only where the service passes on know-how the buyer can use alone; ask your adviser.

Exhibit 2: Treaty withholding rates on royalties and technical fees, selected countries

Source: Income Tax Department table (as amended by Finance Act 2025). Your adviser confirms the rate for your contract.

The solutions: who can fix which part of the problem

Tax advisers own the tax position; the paperwork and any unsupported shortfall need someone inside the buyer.

Exhibit 3: Options when an Indian buyer has deducted tax

If the buyer cites tax but nothing arrives at all, the hold may be at its bank; see when an Indian buyer blames its bank.

Genuine deduction or disguised short payment?

A lawful deduction leaves a paper trail you can check; a short payment does not.

Exhibit 4: Six tests for the amount withheld

On the last test: India's goods and services tax (GST) on imported services is normally paid by the buyer itself under the "reverse charge" rule, not taken from you. And if your contract says the buyer bears Indian taxes, it must gross up: pay you the full invoice and the tax on top.

What you can do this week

1. Ask for the calculation in writing: the amount, the rate, the section and the treaty article applied.
2. Ask for the Form 145 acknowledgement and the Form 146 certificate filed for your payment. Form 146 shows the rate and its basis.
3. Send, or renew, your TRC and Form 41 before the next invoice, so the treaty rate applies from then on.
4. Ask when Form 131 will issue. It is due quarterly, within 15 days of the due date of the buyer's quarterly Form 144 statement.
5. Ask your home tax adviser what proof your authority accepts.
6. If you invoice India regularly, ask an Indian adviser about a PAN and a lower-deduction certificate.

Why GGA: we get the paperwork and the balance, your advisers decide the tax

GGA works in the buyer's office until every withheld dollar is either proven as tax or paid to you.

• In India, at the buyer's desk. From 17 Indian cities, a GGA specialist meets the buyer's tax and payables teams and the accountant who signed Form 146.
• Paperwork first. We obtain the Form 145 acknowledgement, the Form 146 certificate, the challan (tax payment) details and each quarter's Form 131, and reconcile them to your invoices.
• The balance second. Where the paperwork supports less tax than was withheld, or none, we pursue the difference as an unpaid amount.
• Your advisers stay in charge. We send your tax adviser the documents and the questions; GGA gives no tax opinion and files nothing in your name.
• Paper, not confrontation. A tax team asked for a specific form usually produces it; the relationship stays intact.
• A dispute is treated as a dispute. If a "deduction" turns out to cover a quality or price claim, any legal route is coordinated with Indian counsel once you approve it in writing. The legal-notice page explains why a notice should wait until the amount is reconciled.
• One report for many deductions. When several invoices carry unexplained deductions, a Recovery Position Report sets out what is tax, what is owed and what is worth pursuing.

GGA is not the right call under USD 20,000, or where the only issue is treaty interpretation. Wider causes are in why an Indian customer with no complaint still has not paid; the pillar guide to recovering B2B debt from an Indian company and cost and time by route cover a balance the buyer refuses to pay. The India Desk lists every related topic.

What GGA would do

Prove what was deducted, get the certificate, and release anything the proof does not cover.

1. Days 1–3: Deduction check against your invoice, contract and the documents the buyer holds. You receive: a schedule showing amount, apparent rate and base, and which tests in Exhibit 4 fail.
2. Week 1: Paper trail. We meet the buyer's tax team and ask for Forms 145 and 146 and the challan details. You receive: copies, or a written note of what the buyer cannot produce.
3. Weeks 1–3: Adviser pack. The trail and the open questions on rate, base and PE. You receive: a pack your adviser can review without chasing India.
4. Weeks 2–6: Certificate and balance. We follow Form 131 through the buyer's next quarterly statement and pursue any amount the paperwork does not support. You receive: a weekly status note by invoice.
5. Next invoice: Prevention. We confirm the buyer holds your current TRC and Form 41, and the rate it will apply. You receive: a written confirmation of the rate from the buyer.

Terms: for balances from USD 20,000, a file-opening fee and success commission are agreed in writing before work begins, and commission is charged only on amounts actually recovered.

What we need from you

Four items show whether the deduction can be right.

To start

• The buyer's name and city, and each short-paid invoice with the amount received
• The contract or purchase order, including any tax or gross-up clause
• The buyer's explanation of the deduction
• What the invoice covers: goods, services, software, royalty or a mix

To act

• Your tax residency certificate and Form 41 acknowledgement, with dates sent
• Your PAN, if you have one
• Any Form 131 certificates already received
• SWIFT details of the payments received
• Any no-permanent-establishment declaration the buyer asked for
• Your tax advisers' contact details, at home and in India if you have one

Missing some of these? Send what you have — telling you what is missing is part of the first reply.

How you stay in control

Your tax position stays with your advisers; GGA works only on the paperwork and the money.

• Your buyer pays you directly. GGA never receives or holds your money.
• Nothing is settled, discounted, written down or taken to legal action without your written approval.
• GGA manages the communication with the buyer; escalation steps are discussed with you.
• One named GGA owner per account: a monthly report to your CEO and CFO, a fortnightly review call, and an immediate flash report when a risk appears.
• Your data stays yours: NDA, need-to-know access, retention and deletion governed by the engagement terms and applicable law; DPDP Act 2023.
• Fee and commission are agreed in writing before recovery begins. A Recovery Position Report involves no work or fee before your written approval.
• Treaty claims, gross-up and PE declarations are decided by you and your tax adviser; GGA signs nothing for you.
• GGA never asks a buyer to pay any other account.

Send us one unpaid invoice. Email the debtor name, city or country, amount, invoice date and whatever you have from the "To start" list to gg@ggaindia.co.in. Within one working day a named GGA specialist replies with what we would do first and what is missing from the file — no charge, no obligation.

A different situation? Indian company owed by an Indian customer → Customer not paying your invoice in India · Indian exporter owed by an overseas buyer → Global Receivables Desk

Frequently asked questions

Is it legal for an Indian company to deduct tax from a payment to a foreign supplier?

Yes, where the income is taxable in India, typically royalties, software licences and technical services. Section 393 of the Income-tax Act, 2025 requires it. Payment for goods sold from abroad, with no Indian base, is usually not taxed.

Which section replaced section 195?

From 1 April 2026, section 393(2) of the Income-tax Act, 2025 covers withholding on payments to non-residents. Forms 15CA and 15CB became Forms 145 and 146; Form 10F became Form 41; Form 16A became Form 131.

How do we get the treaty rate instead of 20%?

Give the buyer your tax residency certificate and file Form 41 online before it pays. Without a PAN, also give your name, email, phone, address and home tax number to avoid an even higher rate.

How do we get the certificate of tax deducted?

Ask for Form 131. The buyer generates it from its quarterly Form 144 statement and issues it within 15 days of that statement's due date. Your home tax authority will usually ask for it.

Can we get back tax deducted at too high a rate?

Usually through an Indian tax return, which needs a PAN, or by credit at home only up to the treaty rate. An Indian tax adviser handles the return; GGA can obtain the documents it needs.

Related questions for foreign creditors: Is my Indian customer still in business? · How long do we have to bring a claim against an Indian company? · Country guides: Germany · Japan · Singapore

Sources

• Withholding tax rates under tax treaties — Income Tax Department
• Form 128: application for lower or nil deduction, section 395 — Income Tax Department
• Rule 217, Income-tax Rules, 2026 — Income Tax Department
• TDS certificates Forms 130–133 under section 395(4) — Income Tax Department
• Notification 10/2017-Integrated Tax (Rate), reverse charge — GST Council
• TDS on payments to non-residents, section 393 (EximPe)
• Form 41 for non-residents (efiletax)
• Tribunal on offshore supplies without a PE (PwC India Tax Insights)

This page summarises the position as at 9 November 2026. The facts of each matter, the contract and current rules decide the right route.