NRI Director's Salary from an Indian Company: TDS, Form 15CA/15CB, and What Actually Gets Withheld

A founder completes private limited company registration in India, appoints an NRI co-founder as a director, and a few months later the finance team hits a genuine question nobody flagged during incorporation: when this director gets paid, does the company deduct TDS the way it would for any other employee, or does this go through the whole Form 15CA/15CB remittance process reserved for foreign payments?

The honest answer is: it depends entirely on what kind of director this is and how they're actually being compensated — and this is exactly the distinction that trips up companies who assume "paying an NRI" automatically means the Section 195 machinery. It often doesn't.

The Split That Decides Everything: Salary vs. Everything Else

Section 195 of the Income Tax Act requires TDS on payments made to non-residents where the income is chargeable to tax in India — professional fees, interest, royalties, and a wide range of other payments. It's the section most people associate with any cross-border payment to an NRI, and it's the one that triggers Form 15CA (the remitter's self-declaration) and, where applicable, Form 15CB (a Chartered Accountant's certificate confirming the tax treatment before the money leaves India).

Here's the detail that a lot of otherwise careful finance teams miss: salary is explicitly carved out of Section 195. Salary paid to anyone — resident or non-resident — is governed by Section 192, a completely separate TDS regime with its own computation method, its own return filing (Form 24Q rather than Form 27Q), and no Form 15CA/15CB requirement attached to it.

So the real question a company needs to answer before running payroll for an NRI director isn't "are they an NRI" — it's "is this genuinely a salary, or is this a fee for a service?"

Executive Directors Drawing a Salary: Section 192 Applies

If the NRI director is a whole-time or executive director, genuinely employed by the company and drawing a salary under an employment arrangement, Section 192 governs the TDS — the same provision that applies to every other salaried employee. The company estimates the director's total taxable salary for the year, works out the tax liability at the applicable slab rates, and deducts TDS proportionately each pay cycle, the same mechanical process used for any employee.

But there's a threshold question that has to be answered first, and it's easy to get wrong: is the salary actually taxable in India at all? Under Section 9(1)(ii) of the Income Tax Act, salary income is taxable in India based on where the services are physically rendered — not where the company is incorporated, not where the director is paid from, and not the director's residency status by itself. A director who works entirely remotely from abroad, never physically performing any part of their role in India, may have salary income that isn't taxable in India at all — in which case Section 192 TDS doesn't apply, because there's nothing chargeable to deduct against.

This is where directors who split time matter. An NRI executive director who spends part of the year in India attending board meetings and part of the year working from abroad may need their salary apportioned between the two, with Indian TDS applying only to the portion attributable to services actually performed in India. Getting this wrong in either direction — deducting TDS on the full salary when only part is taxable, or deducting nothing when a meaningful portion of the role is performed in India — creates problems that surface later, either as an over-withheld refund claim or an under-withheld disallowance.

Non-Executive Directors Drawing Sitting Fees or Commission: Section 195 Applies

This is the scenario that actually needs the Form 15CA/15CB process, and it's often the one companies handle incorrectly by defaulting to the salary treatment out of habit.

A non-executive or independent NRI director typically isn't an employee of the company in the traditional sense. They're compensated through sitting fees for attending board meetings, or through commission tied to profits, rather than a monthly salary. This isn't "salary" for tax purposes — it's a payment for services, and it falls squarely within Section 195's scope as a sum chargeable to tax in India, paid to a non-resident.

For this category, the company needs a TAN (if it doesn't already have one), must deduct TDS at the applicable rate before remittance, and — critically — must file Form 15CA electronically before the money is sent, with a Chartered Accountant's Form 15CB certifying the nature and taxability of the payment where the transaction requires it. Skipping this step because the payment "feels like" director compensation, the same category as an executive's salary, is the single most common compliance gap in this area.

Where DTAA Actually Helps

For the sitting-fee or commission route specifically, a Double Taxation Avoidance Agreement between India and the director's country of residence can meaningfully reduce the withholding rate compared to the domestic rate that would otherwise apply. To claim this relief, the director needs to provide a Tax Residency Certificate from their home country, file Form 10F, and give the company a self-declaration confirming their eligibility for treaty benefits — and this documentation needs to be in hand before the payment is processed, not requested afterward once the company realises a lower rate might have applied.

For the salary route under Section 192, DTAA relief works differently and is generally claimed by the director directly when filing their own Indian tax return, rather than being built into the company's withholding calculation upfront in the same way.

What Actually Gets Filed, and When

For salary payments to an NRI executive director: TDS deducted under Section 192, deposited via the standard TDS challan process, reported quarterly through Form 24Q, with Form 16 issued to the director at year-end — the identical process used for any resident employee, just with the added residency-and-source analysis under Section 9(1)(ii) determining how much of it is taxable at all.

For sitting fees or commission to a non-executive NRI director: TDS deducted under Section 195, Form 15CA filed before remittance (with Form 15CB from a CA where required), TDS deposited by the standard due date, and reported quarterly through Form 27Q, with Form 16A issued rather than Form 16.

Missing the correct filing track — whether that's skipping Form 15CA/15CB for a fee-based director, or unnecessarily routing a genuinely salaried executive director's pay through the Section 195 remittance process — creates avoidable friction, either in the form of a Section 271-I penalty for the missing 15CA/15CB filing, or in the form of disallowed expenses under Section 40(a)(i) if the wrong TDS section is applied and challenged later.

Getting This Right From the Start

For anyone going through company formation in India and appointing an NRI as a director, the practical fix is simple but easy to overlook in the excitement of getting the entity registered: classify the director's role and compensation structure clearly at the point of appointment, not after the first payment is due. Decide upfront whether this is a genuine employment relationship with salary, or a fee-based non-executive arrangement — because that single classification determines which TDS section applies, which forms get filed, and which return the payment shows up on.

This is exactly the kind of detail that gets missed during online registration of company when the focus is entirely on getting the incorporation itself completed. By the time the first payroll cycle or sitting fee payment comes due, it's worth having this classification settled rather than defaulting to whichever process feels more familiar.

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Frequently Asked Questions

1. Does Form 15CA/15CB apply to an NRI director's salary?

Generally no. Salary is governed by Section 192, not Section 195, so the Form 15CA/15CB remittance process attached to Section 195 doesn't apply to genuine salary payments.

2. Is an NRI director's salary always taxable in India?

Not necessarily. Taxability depends on where the services are actually performed, under Section 9(1)(ii). A director working entirely from abroad may have no Indian-taxable salary at all.

3. What TDS section applies to sitting fees paid to a non-executive NRI director?

Section 195, since sitting fees and commission are treated as payments for services rather than salary, triggering the Form 15CA/15CB process before remittance.

4. Can a DTAA reduce the withholding rate on director compensation?

Yes, for the sitting-fee/commission route, provided the director furnishes a Tax Residency Certificate, Form 10F, and a self-declaration before the payment is made.