You pay your own overseas company a fee. That's a transfer-pricing filing

The trigger is simple: an international transaction with an associated enterprise. Your Indian company and its overseas parent count as associated the moment one holds a meaningful stake in or controls the other, which describes almost every NRI-founded subsidiary. A management fee, a brand or software licence, a cost-share for shared staff, a loan, even a modest one, all count.

There's a separate ₹1 crore aggregate threshold in the rules, but it governs the fuller Rule 10D documentation file, not whether Form 3CEB itself is owed. A single small payment still needs the accountant's report; only once your total related-party transactions cross ₹1 crore in the year does the heavier documentation kick in too. Confusing the two is the single most common mistake founders make here.

Whatever your company charges or is charged in these transactions has to reflect what an unrelated party would have agreed to, an arm's length price. That's not a formality: the department's real question, when it looks, is whether the service was genuinely rendered at all, and only then whether the price was fair. A management fee with no supporting record of what management actually did is a weaker position than one backed by an agreement, invoices and a rationale for the rate.

The TDS side runs alongside this, separately: a payment to the non-resident parent is itself subject to withholding under Section 195 (Section 393(2) from FY 2026-27), the same mechanism that applies to any payment to a non-resident, whether or not transfer pricing applies to it.

The recurring mistake is assuming this only matters once the company is bigger, established, or has been running the arrangement for a few years. It doesn't wait for any of that. A first-year subsidiary paying its parent a modest management fee, with no Form 3CEB filed because nobody flagged it as a "transaction" in the first place, is already in default. The second mistake is filing 3CEB but with no real documentation behind the price, which holds up fine until an assessment actually asks for it, at which point the 2% penalty is calculated on the whole transaction value, not just the shortfall.

Working out the TDS and getting Form 3CEB filed doesn't mean the payment goes through. Before essentially any payment leaves India to a non-resident, the remitter has to file Form 15CA (renamed Form 145 from 1 April 2026) under Rule 37BB, a self-declaration the bank checks before releasing the transfer. If the remittance is taxable and your total payments to that same non-resident cross ₹5 lakh in the financial year, a chartered accountant also has to certify Form 15CB (Form 146) first. This is a procedural, bank-enforced gate, separate from whether you've got the transfer-pricing and TDS position right, and it applies to any qualifying foreign payment, a vendor invoice, a software licence renewal, a consultant's fee, not only the management fee or royalty this page has been discussing. A company that has done everything right on the tax side can still watch a payment sit at the AD bank because nobody filed the 15CA/15CB paperwork first.

There's a third layer here, and it's a Companies Act one, not a tax one. Section 188(1) requires the board's prior approval, by resolution passed at an actual board meeting, not a circular resolution, for specified contracts with a related party, and your overseas parent counts. Any director with an interest in the transaction has to step out of that discussion. Where the payment crosses 10% of your company's turnover (the threshold for buying goods or services from a related party, based on last year's audited financials), your shareholders need to approve it too, by ordinary resolution, unless the transaction is genuinely in the ordinary course of business AND at arm's length, in which case Section 188 doesn't apply at all, though the company carries the burden of showing both. One useful carve-out for a straightforward parent-subsidiary structure: if your company is a wholly-owned subsidiary of the paying group's holding company, the shareholder-resolution requirement doesn't apply to you at all, not something an existing resolution stands in for, provided your accounts are consolidated with the holding company's and presented to its shareholders. None of this replaces the 3CEB filing or the 15CA/15CB gate above, it runs alongside them.

Getting the arm's length price right doesn't decide the withholding rate on the payment itself. That turns on a separate question: has your overseas parent, the recipient, done its own paperwork this year?

Section 90(4) (Section 159(8) from 1 April 2026) says the lower DTAA rate on a payment to a non-resident is only available if that non-resident furnishes, for itself, a current-year Tax Residency Certificate from its home country, Form 10F (renamed Form 41 from FY 2026-27) covering whatever the TRC doesn't already state, and a declaration that it has no Permanent Establishment in India through which the payment is effectively connected. This is the same TRC/Form 10F mechanic this site explains elsewhere for an individual claiming treaty relief on their own income, applied here to your parent company as the recipient. It's the parent's paperwork, gathered from its own jurisdiction, not something your Indian company's compliance can substitute for.

Without it, Section 195 (Section 393(2) from FY 2026-27) defaults to the domestic rate, and for royalty or fees for technical services paid to a non-resident or foreign company, that domestic rate is Section 115A's 20% (plus applicable surcharge and cess), not the older 10% many founders still assume, the rate was doubled by the Finance Act 2023 from 1 April 2023, specifically to remove the incentive to skip the treaty paperwork rather than gather it once a year.

One more consequence worth knowing before your parent chooses the treaty route: Section 115A(5) used to exempt a non-resident from filing an Indian income tax return at all, as long as tax was correctly withheld at Section 115A's own rate. Since the Finance Act 2023, that exemption no longer covers a non-resident who claims the lower DTAA rate instead, your parent now has to register and file its own Indian return to sustain that treaty position, an ongoing obligation the lower withholding rate doesn't come free of.

"Your DTAA's rate" above isn't a single figure, it's set country by country, and a few of them work differently enough to change what you're actually withholding:

An ordinary management fee, brand licence or cost-share, the scenario this page is actually about, falls at the general rate in every row above, not the equipment-royalty carve-out; that lower rate is specifically for leasing physical industrial, commercial or scientific equipment, a different fact pattern worth flagging to your CA if it applies. A parent anywhere else still gets whatever rate that country's own DTAA sets, or none at all if India has no treaty with it, confirm the actual article before relying on a number.