If you handle finance at a 100-person Indian company, you've almost certainly paid for Slack, Zoom, AWS, or Notion this month. You probably treated it the same way you'd treat a domestic vendor payment: raise a PO, approve the invoice, swipe the card. The problem is that the Income Tax Act, FEMA, and the RBI don't see it that way. A USD SaaS payment is a foreign remittance with its own set of withholding rules, filing requirements, and penalties, and most finance teams find this out only when a scrutiny notice lands.
This guide covers the three compliance layers you need to understand before your next renewal hits: TDS under Section 195, Form 15CA/15CB filing obligations, and FEMA/RBI remittance rules. It also covers the equalisation levy, which quietly adds 2% to many payments, and gives you a practical checklist you can actually use. The goal isn't to turn your finance team into tax lawyers. It's to make sure you're not sitting on an unquantified liability that shows up at audit time.
Start with this: the penalties for non-deduction of TDS under Section 195 can equal the tax amount itself, plus interest at 1.5% per month from the date payment was due. On a ₹40 lakh AWS annual bill, that arithmetic gets uncomfortable fast.
Why Paying for SaaS in USD Is a Compliance Event, Not Just an FX Transaction
The framing most Indian finance teams use is wrong. Paying a foreign SaaS vendor isn't a procurement decision with a currency conversion step attached. It's an import of services from a non-resident entity, which triggers three separate regulatory regimes simultaneously.
First, the Income Tax Act. Under Section 195, any person making a payment to a non-resident must deduct TDS if the income is chargeable to tax in India. SaaS subscriptions frequently get classified as "royalty" under Section 9(1)(vi) because the customer is paying for the right to use software (or a process, or a formula, depending on how the vendor's agreement is worded). Courts and the ITAT have gone back and forth on this, but the conservative position, and the one your tax auditor will take, is that you need to assess applicability before remitting.
Second, FEMA and RBI. Any outward foreign remittance must go through an Authorised Dealer (AD Category-I) bank. The bank needs documentation, a purpose code, and in many cases a Form 15CA acknowledgement before it will process the wire. Credit card payments for SaaS are technically foreign remittances too, which creates complications we'll cover later.
GST on SaaS India and its 2020 expansion, a 2% levy applies to payments made to non-resident e-commerce operators supplying services to Indian recipients. Many SaaS tools fall inside this net.
Most Indian SMBs are running 3 separate compliance obligations every time they pay a foreign SaaS vendor, and they're managing it on a credit card statement and a spreadsheet.
Key takeaway: A USD SaaS payment triggers TDS under Section 195, FEMA remittance documentation, and potentially the equalisation levy, all at the same time.
INR-to-USD Conversion: How Exchange Rate Fluctuation Quietly Inflates Your SaaS Budget
Here's a concrete example. Your finance team budgets ₹5 lakh annually for a SaaS stack priced in USD, using a planning rate of ₹82 per dollar. By the time renewals hit mid-year, the rate has moved to ₹86. The same dollar spend now costs ₹5.6 lakh, a 12% budget overrun that nobody planned for and nobody's fault.
The rate you actually pay isn't even the RBI reference rate. Banks use the TT (Telegraphic Transfer) selling rate, which typically sits 2 to 3.5% above the RBI reference rate. On a wire transfer of $10,000, that's ₹17,000 to ₹28,000 in bank markup alone, sitting invisibly inside the transaction. Corporate credit cards carry a similar or higher forex markup depending on the issuer.
For large annual subscriptions, it's worth evaluating whether to pay monthly (higher per-unit cost but smaller individual forex exposures) or lock in an annual payment and negotiate a forward cover with your bank. This isn't a conversation most 100-person companies have with their bankers, but it should be on the table when a single vendor invoice crosses $5,000 annually.
Action: Build a SaaS budget line that uses your bank's TT selling rate plus a 3% forex buffer, not the RBI reference rate. Reconcile quarterly against actual bank statements to catch the variance before it compounds.
The practical implication for your expense records: the INR amount on the date of transaction is what matters for TDS calculation and 15CA filing. The budgeted rate is irrelevant to the tax authority. Log the actual transaction-date INR equivalent for every foreign SaaS payment.
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Key takeaway: Your actual INR SaaS cost is the USD price multiplied by the bank's TT selling rate (not the RBI reference rate), plus the forex markup, which together can add 5 to 6% to what you thought you were paying.
TDS Under Section 195: When It Applies to Your SaaS Subscriptions
Section 195 is deceptively simple on its face: deduct tax at source on payments to non-residents where the income is taxable in India. The complexity sits in determining whether SaaS subscription fees are taxable in India, which turns entirely on how the payment is characterised.
The dominant classification for SaaS has been royalty under Section 9(1)(vi). The logic: the customer is paying for the right to use software that the vendor owns, which fits the definition of royalty in the Income Tax Act. Some ITAT rulings have pushed back, arguing that standardised SaaS (software as a service, not a licensed copy) should be treated as business income rather than royalty, and business income of a non-resident is taxable in India only if earned through a Permanent Establishment here. Most global SaaS vendors don't have a PE in India.
For practical purposes, the safe position is to assess TDS applicability on every payment and document your reasoning. If you take the PE/business-income route and a future audit disagrees, you're exposed.
DTAA Relief and Tax Residency Certificates
India has Double Taxation Avoidance Agreements with the US (DTAA rate on royalties: 15%), Ireland (10%), and the Netherlands (10%), which covers the domicile of most major SaaS vendors. If the vendor provides a valid Tax Residency Certificate (TRC) for the relevant financial year, you can apply the DTAA rate instead of the domestic rate of 10 to 25%. Without a TRC, you default to the higher domestic rate.
The practical implication: email your SaaS vendors before the financial year ends and request their TRC. Most US-based vendors (Salesforce, Atlassian, Zoom) are familiar with this request from Indian enterprise customers. Smaller vendors may need explaining.
Watch out: TDS under Section 195 must be deducted on the grossed-up payment, not on the net amount. If you're bearing the TDS cost, the payment to the vendor increases to maintain the net amount after tax. Calculate accordingly or you'll under-deposit.
Form 15CA and 15CB: The Filing You Can't Skip Before Remitting Payment
Form 15CA is the self-declaration you file on the Income Tax e-filing portal before your bank processes an outward foreign remittance. The form has four parts. For most SaaS payments, Part A applies when the remittance doesn't exceed ₹5 lakh in the financial year to a single vendor. Once you cross ₹5 lakh with one vendor, Part C of Form 15CA is mandatory, and it requires a Chartered Accountant's certificate in Form 15CB first.
Form 15CB is your CA's certification of the nature of the payment, the applicable TDS rate, and the DTAA position if you're claiming one. It takes a working CA at least 1 to 2 days to assess and sign off on a 15CB, particularly if it's the first time they're reviewing a specific vendor relationship. Budget 2 to 3 working days before the renewal date for CA review and portal submission, especially around quarter-ends when CA bandwidth is thin.
The bank will not process your SWIFT transfer without the Form 15CA acknowledgement number. This is a hard stop, not a soft requirement. If your renewal auto-charges a card, that's a different situation (covered under FEMA below), but for wire transfers you have no workaround.
Action: Set a calendar reminder 5 working days before each annual SaaS renewal that requires a wire transfer. Use that time to brief your CA, collect the vendor's TRC, and complete the 15CA filing before the bank cutoff.
Part D of Form 15CA is a residual category for remittances covered by a specific exemption list under Rule 37BB. Check with your CA whether any of your SaaS payments qualify, as it simplifies the process significantly.
FEMA and RBI Rules: Permissible Remittance Routes for SaaS Payments
SaaS subscriptions purchased for business use are imports of services. They fall outside the Liberalised Remittance Scheme (LRS), which is for personal remittances by individuals, not corporate payments. This means the $250,000 LRS annual limit doesn't restrict your SaaS spend, but it also means the LRS documentation framework doesn't apply. Your business bank account through an AD Category-I bank is the correct route.
The bank will ask for: the vendor invoice in USD, the service agreement or subscription confirmation, a purpose declaration under FEMA, and the Form 15CA acknowledgement. Routine payments to established vendors (AWS, Google, Microsoft) are generally processed without friction once you've done this once. Less familiar vendors may trigger additional scrutiny from the bank's compliance desk.
Credit card payments for SaaS sit in an awkward position. Technically they are foreign remittances. Budget 2023 introduced a 20% TCS under LRS on international credit card spends, which created significant confusion about whether business SaaS payments on corporate cards would be captured. The government clarified exemptions for bona fide business expenses, but the treatment still depends on how your bank's system classifies the merchant category code. Using a dedicated business account wire or a corporate card with your bank's AD Category-I designation is cleaner than a personal card or a general corporate card with ambiguous classification.
Keep the following documents for at least 7 years (income tax and FEMA audit windows): original vendor invoice, service agreement, Form 15CA acknowledgement, Form 15CB if applicable, the bank's A2 form (outward remittance declaration), and the vendor's TRC for each financial year you claimed DTAA benefit.
Talk to our team about building a clean foreign SaaS payment workflow — book a 15-minute call.
Equalisation Levy: The 2% Tax That Most Teams Forget to Account For
The Finance Act 2016 introduced equalisation levy at 6% on digital advertising payments to non-residents. The Finance Act 2020 expanded it to 2% on payments to non-resident e-commerce operators supplying goods or services to Indian buyers. Most SaaS vendors operating platforms qualify as e-commerce operators under this definition.
The important nuance: large vendors like Google, Adobe, and LinkedIn have started including the equalisation levy in their India-specific invoicing, meaning they're depositing it with the Indian government directly. For these vendors, you don't have a separate liability. But many mid-tier SaaS vendors haven't adjusted their invoicing for Indian customers. In those cases, the Indian buyer is technically the person liable to deduct and deposit the levy with the government by the 7th of the following month.
Equalisation levy and TDS under Section 195 are mutually exclusive for the same transaction. If equalisation levy applies, TDS on royalty does not, and vice versa. Getting this wrong means either double-withholding (which creates a vendor relationship problem) or missing a liability entirely. Confirm the applicable framework for each vendor before your first payment.
Key takeaway: For SaaS vendors who haven't localised their India invoicing, the 2% equalisation levy is your liability, not theirs, and it's independent of TDS under Section 195.
Tracking Foreign SaaS Spends: The Operational Problem Behind the Compliance Gap
Here's the uncomfortable truth: most compliance failures on Section 195 and equalisation levy don't start with bad tax advice. They start with disorganised expense records. Your finance team can't file 15CA/15CB for a subscription they don't know exists.
Shadow IT makes this worse. Developers spin up AWS accounts on their personal cards. Designers buy Figma seats. Growth teams subscribe to data tools on a startup card they manage themselves. None of these route through the finance team's payment infrastructure, which means no TDS assessment, no 15CA filing, and no FEMA documentation. When a tax audit surfaces these transactions, the liability is backdated with interest.
A clean SaaS expense record for foreign payments needs these fields at minimum: vendor name, USD amount, INR equivalent at transaction date, exchange rate used, bank (card or wire), TDS status (assessed/deducted/not applicable and reason), equalisation levy status, and renewal date. That's 8 fields. It's not complex, but most teams are running it on a general expense sheet where none of these columns exist.
For finance teams who want a structured, manual log without committing to a full integration, Keep Expense in Easexpense is built exactly for this: one row per bill, the fields finance actually needs, accessible to the ops and CA teams who need to action it. You can also see your full vendor catalog to cross-reference which tools have India-compliant invoicing built in.
Action: Run a one-time audit of every credit card and bank account used by your company in the last 12 months. Flag every recurring USD charge. That list is your Section 195 and equalisation levy assessment backlog.
A Practical Compliance Checklist for Indian Companies Paying International SaaS Vendors
Use this as a standing operating procedure, not a one-time exercise.
Before payment:
- Obtain the vendor's Tax Residency Certificate for the current financial year
- Check the applicable DTAA withholding rate (or confirm PE/business-income position if taking that route)
- Confirm whether equalisation levy applies and who is remitting it
- Assess grossed-up TDS amount if you are bearing the tax
- Brief your CA and allow 2 to 3 working days for 15CB sign-off and 15CA filing
At payment:
- Ensure 15CA acknowledgement number is ready for bank submission
- Collect the bank's A2 form as your FEMA documentation
- Record the actual INR equivalent at the transaction-date exchange rate
Post-payment:
- Deposit TDS by the 7th of the following month
- File TDS return in Form 27Q quarterly (Q1: July 31, Q2: October 31, Q3: January 31, Q4: May 31)
- Deposit equalisation levy if applicable by the 7th of the following month
Quarterly:
- Reconcile INR amounts against bank statements at actual conversion rates
- Update SaaS expense log with any new shadow-IT subscriptions discovered
Annual:
- Include foreign SaaS remittances in the 3CD tax audit report under clause 15(c) for royalty payments
- Issue Form 16A to the foreign vendor (not a legal requirement but useful for DTAA claims they may make in their home country)
- Renew TRC collection process before April 1 for the new financial year
What the Cost Actually Looks Like: A Full-Stack Example for a 100-Person Indian Company
Let's make this concrete. A 100-person Indian SaaS company running a typical mid-market stack might pay:
- Slack: $12.50 per user per month × 80 seats = $12,000/year
- AWS: approximately $4,000/month = $48,000/year
- Figma: $45/editor/month × 10 editors = $5,400/year
- Zoom: $15/host/month × 20 hosts = $3,600/year
- Total USD outflow: approximately $69,000/year
At a naive RBI reference rate of ₹84, that's ₹57.96 lakh. Here's what the actual cost looks like when you layer in the real numbers:
- Bank TT selling rate (2.5% markup): ₹86.1 per dollar, bringing the total to ₹59.4 lakh
- Equalisation levy at 2% on applicable tools: add approximately ₹1.1 lakh
- TDS gross-up at 15% (US DTAA rate) on royalty-classified payments: adds another ₹1.5 to ₹2 lakh depending on which tools are classified as royalty
Total effective INR cost: approximately ₹62 to ₹63 lakh versus the ₹58 lakh you'd calculate from the USD sticker price. That's an 8 to 9% gap. Ignoring it doesn't make it go away; it just means the liability sits unrecognised until your 3CD audit brings it up.
The starting point for any cost optimisation — whether you're trying to cut tools, renegotiate contracts, or consolidate vendors through our marketplace for better rates — is a clean, accurate picture of what you're actually spending. You can't optimise a number you're not measuring correctly.
Frequently asked questions
Is TDS applicable on SaaS subscription payments made to foreign companies from India?
Yes, TDS under Section 195 of the Income Tax Act can apply if the payment is classified as royalty or fees for technical services chargeable to tax in India. Whether you actually deduct depends on the applicable DTAA between India and the vendor's country of residence, provided the vendor supplies a valid Tax Residency Certificate for the relevant financial year. Without a TRC, the default withholding rate can be 10 to 25% of the gross payment. Some ITAT rulings have argued that standardised SaaS should be treated as business income rather than royalty, which is only taxable in India if the vendor has a Permanent Establishment here, but the conservative and auditor-safe position is to assess TDS applicability before remitting. Document your reasoning either way.
What is Form 15CA and 15CB, and do I need them for every SaaS payment?
Form 15CA is a self-declaration filed on the Income Tax e-filing portal before remitting money abroad. Form 15CB is a Chartered Accountant's certificate confirming the tax treatment of the remittance and the applicable withholding rate. For SaaS payments to a single vendor exceeding ₹5 lakh in a financial year, Part C of Form 15CA along with Form 15CB is mandatory. Smaller payments under ₹5 lakh to a single vendor use Part A (if TDS is deducted) or Part D (if covered by a specific exemption under Rule 37BB). Your bank will require the 15CA acknowledgement number before processing the wire transfer, so this is a hard operational dependency, not optional paperwork.
Does the 20% TCS on international credit card spending apply to SaaS subscriptions paid via credit card?
The 20% TCS announced in Budget 2023 under LRS was intended for personal overseas spending, but the initial notification created confusion about business credit card payments for SaaS. The government subsequently clarified exemptions for bona fide business expenses, but the exact treatment depends on how your bank classifies the merchant category code for the SaaS vendor. Using a dedicated business bank account wire or a corporate card with your bank's AD Category-I approval is cleaner than a personal card for avoiding this ambiguity. If your team is using personal cards for SaaS payments (common for shadow IT situations), those transactions are the most exposed. The safest approach is to centralise all foreign SaaS payments through a properly documented business account.
What is the equalisation levy on SaaS, and who is responsible for paying it?
The equalisation levy at 2% applies to payments made to non-resident e-commerce operators for supply of services to Indian buyers under the Finance Act 2020. For most SaaS tools, the Indian company making the payment is technically the person liable to deduct and deposit the levy with the government by the 7th of the following month. However, some large vendors like Google and Adobe have started including the levy in their India-specific invoices and remitting it themselves. You should check each vendor's invoicing terms carefully to avoid either double-counting the liability or missing it entirely. Equalisation levy and TDS under Section 195 are mutually exclusive for the same transaction.
How do I calculate the actual INR cost of a USD SaaS subscription including all taxes and charges?
Start with the USD price, convert at your bank's TT selling rate (typically 2 to 3.5% above the RBI reference rate), then add equalisation levy at 2% if applicable, and gross up for TDS at the applicable DTAA or domestic rate if you're bearing the tax cost on behalf of the vendor. On a $1,000 payment, you might realistically land at ₹88,000 to ₹92,000 versus the naive ₹83,000 at the RBI reference rate. Building a per-vendor calculation in your expense tracker prevents budget surprises at audit time. The fields you need: USD amount, transaction-date exchange rate (bank TT rate), INR equivalent, equalisation levy amount, TDS deducted, and net INR outflow.
What documents should I keep for FEMA compliance when paying a foreign SaaS vendor?
Maintain the original vendor invoice in USD, the service agreement or subscription confirmation, the bank's A2 form (outward remittance declaration), the Form 15CA acknowledgement, and Form 15CB if applicable. If you're claiming DTAA benefit, also retain the vendor's Tax Residency Certificate for the relevant financial year. These documents should be accessible for at least 7 years because they can be called up in an income tax or FEMA audit, and the two audit windows can run concurrently. Organise them by vendor and financial year, not just by date, so you can reconstruct the full picture for any single vendor relationship if asked.
Can I claim credit for TDS deducted on SaaS payments against my company's income tax liability?
The TDS on foreign payments under Section 195 is a withholding on the non-resident vendor's income, not on your company's income. You deposit it with the government on behalf of the vendor and cannot offset it against your own tax payable. However, the gross payment including TDS is fully deductible as a business expense, which reduces your taxable income. The vendor can claim credit for this withheld tax in their home country if a DTAA exists between India and that country, which is one reason vendors often request a Form 16A from you even though issuing it isn't a legal obligation on your part. Issue it anyway as a matter of course — it supports your DTAA compliance documentation.