You invoice an overseas client for US$10,000, but only US$9,000 reaches your account.
The missing US$1,000 may not be a payment fee. It could be WHT, or Withholding Tax, deducted by the payer before the payment is sent.
For Indian freelancers, exporters, and service businesses, WHT affects the amount received today and the tax credit that may be available later.
There is no single global WHT rate. The answer depends on the payer's country, income type and source, local law, treaty provisions, and documentation.
The missing US$1,000 may not be a payment fee. It could be WHT, or Withholding Tax, deducted by the payer before the payment is sent.
For Indian freelancers, exporters, and service businesses, WHT affects the amount received today and the tax credit that may be available later.
There is no single global WHT rate. The answer depends on the payer's country, income type and source, local law, treaty provisions, and documentation.
TL;DR
- WHT stands for Withholding Tax: tax deducted by a payer before certain income is paid to the recipient.
- WHT can apply to categories such as services, royalties, interest, and dividends, but the treatment varies by country and transaction.
- A DTAA may reduce or eliminate withholding where its conditions are met; treaty relief is not automatic.
- Indian residents may be able to claim eligible foreign tax as Foreign Tax Credit (FTC), subject to Indian tax rules and the required documentation.
What is WHT?
WHT stands for Withholding Tax. It is tax deducted from a payment at source and remitted by the payer to the relevant tax authority.
Instead of the recipient receiving the full gross amount and paying all tax later, the payer withholds the applicable amount before making the net payment.
For example, if an overseas client owes your Indian business US$10,000 and is required to withhold 10%, it may remit:
Gross amount: US$10,000
Tax withheld: US$1,000
Net payment: US$9,000
How does withholding tax work?
A typical cross-border WHT flow is:
- A payment becomes due.
- The payer checks whether withholding applies under local law.
- The rate is identified, including any treaty relief.
- Tax is deducted from the gross payment and remitted to the tax authority.
- The recipient receives the net amount and keeps proof of the deduction.
- The income and foreign tax are then reported under the recipient's home-country rules.
What types of income can attract WHT?
Services and technical fees
Some countries impose withholding on specified service, professional, consultancy, or technical-fee payments to non-residents.
But a US, German, or Singaporean client does not automatically have to withhold simply because an Indian business supplied a service. Source rules, domestic law, and treaty provisions matter.
Royalties
Payments for rights to use intellectual property, software, patents, trademarks, copyrights, or similar rights may be subject to royalty withholding.
Interest
Cross-border interest payments can attract WHT, with treaty provisions sometimes limiting the applicable rate.
Dividends
A company paying dividends to a shareholder resident in another country may be required to deduct tax before distributing the net dividend.
How is the WHT rate determined?
There is no universal withholding-tax percentage.
The rate can depend on:
- the payer's country
- the recipient's tax residence
- the nature and source of income
- domestic tax law
- whether a DTAA applies
- whether treaty conditions are satisfied
- documentation provided to the payer
An applicable DTAA may provide a lower rate or exemption for qualifying income. Do not copy a WHT rate from another invoice without checking whether the same rules apply.
How can a DTAA reduce withholding tax?
A Double Taxation Avoidance Agreement (DTAA) sets rules for how qualifying income is taxed when two countries are involved.
Depending on the treaty and income type, it may limit the source-country rate, allocate taxing rights, or provide double-taxation relief.
Treaty benefits are not automatic. The recipient may need to establish tax residence and provide supporting documents.
Can Indian residents claim foreign tax credit?
Potentially.
Where an Indian resident has eligible foreign tax paid or deducted on income that is also taxable in India, Foreign Tax Credit (FTC) may be available subject to Indian rules.
The Income Tax Department currently provides Form 67 for resident taxpayers claiming foreign tax credit, supported by proof of the foreign income and tax deducted or paid where required.
The credit is not automatically equal to every amount withheld overseas.
WHT vs TDS: what is the difference?
TDS, or Tax Deducted at Source, is India's statutory withholding mechanism. It can apply to specified payments to residents as well as non-residents.
“WHT” is the broader term commonly used internationally.
| WHT | TDS in India |
|---|---|
| General term for tax withheld at source | Indian statutory tax-deduction mechanism |
| Rules depend on the jurisdiction | Governed by Indian income-tax law |
| Can apply to domestic or cross-border income | Can apply to specified resident and non-resident payments |
What documents should Indian businesses keep?
If a foreign client withholds tax, keep the invoice, contract, gross and net amounts, withholding certificate, proof of tax deducted or paid, treaty/tax-residency documents, and Form 67 records where FTC is claimed.
Do not confuse Form 10F with the documents generally used by an Indian resident receiving foreign income. Under India's current framework, Form 41, which replaced Form 10F, is used by non-resident taxpayers claiming DTAA benefits on income received from India.
How PayGlocal helps with international payment visibility
WHT is determined by tax law and the payer's obligations. A payment platform cannot decide whether your foreign client should deduct tax.
What PayGlocal can help with is the payment trail around the deduction.
PayGlocal lets Indian businesses collect international payments through local bank rails and other supported methods, with local collection options in USD, GBP, EUR, CAD, and AUD and broader collection across 33+ currencies from 180+ countries.
End-to-end tracking, INR settlement, and automated FIRA can make it easier to reconcile the invoice, amount received, payment charges, FX conversion, and separately documented tax withheld.
