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Nov 26, 2025
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Supreme Court caps TDS on foreign remittances at 10%, says Income Tax Act cannot override DTAA
The Supreme Court on Tuesday clarified that tax deduction at source on remittances to non-resident entities cannot exceed 10% as specified in various Double Tax Avoidance Agreements (DTAA), and any demand raised by the income tax department beyond this would be inconsistent with the treaty.
Rejecting the income tax department's appeals that wanted higher tax of 20% to be deducted at source (TDS) by various information technology companies like Mphasis, Wipro and Manthan Software Services, the apex court said that the TDS provisions in the Income Tax Act 1961 must be read along with the DTAA for computing the tax liability, and that when the foreign recipient is eligible for treaty benefits, the deduction cannot exceed the 10% cap specified in the DTAA.
The department wanted higher tax of 20% to be deducted at source as these companies had failed to furnish permanent account numbers in terms of Section 206AA of the Income Tax Act.
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