Under Indian domestic law, royalty and fees for technical services (FTS) paid to a non-resident are deemed to accrue in India under section 9 of the Income-tax Act, 2025 and taxed on a gross basis at 20% plus surcharge and cess under section 207 (old section 115A), collected by withholding under section 393(2). A tax treaty applied under section 159 (old section 90) can reduce the rate — typically to 10% or 15% — or remove the charge entirely: most treaties define royalty more narrowly than the Act (so many software and database payments are business profits, following the Supreme Court in Engineering Analysis, 2021), and the India–US, India–UK, India–Singapore and several other treaties tax technical services only where they "make available" technical knowledge, skill or processes to the payer. To claim the treaty, the payee must provide a Tax Residency Certificate, file Form 41 (old Form 10F) on the Indian e-filing portal, and — for business-profits treatment — give a no-PE declaration. The equalisation levy no longer applies: the 2% levy ended on 1 August 2024 and the 6% levy on online advertising on 1 April 2025.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Deemed accrual — royalty and FTS | s. 9(1)(vi), 9(1)(vii) and Explanations | s. 9 (corresponding sub-sections), Income-tax Act 2025 | Source rule: payer in India (with exceptions for business/source outside India) | — | — |
| Rate under the Act — foreign company | s. 115A: 20% + surcharge + cess | s. 207: 20% + surcharge + cess | Gross basis; no expense deduction | — | — |
| Royalty / FTS connected with a PE | s. 44DA | s. 59 | Net basis at corporate rate | — | — |
| Treaty relief | s. 90 | s. 159 | Lower of Act and treaty | — | — |
| TRC requirement | s. 90(4) | s. 159 (corresponding sub-section) | Mandatory for treaty benefit | For the period of payment | TRC from home authority |
| Information from payee | s. 90(5); Rule 21AB; Form 10F | s. 159(8); Form 41 | Status, nationality, TIN, period, address | Each tax year; electronic | Form 41 |
| Withholding | s. 195 | s. 393(2), Table Sl. 17 | Act or treaty rate | At credit or payment | Forms 145/146 |
| Equalisation levy — 6% (online ads) / 2% (e-commerce) | Finance Act 2016 Ch. VIII; Finance Act 2020 | Abolished: 2% from 1 Aug 2024; 6% from 1 Apr 2025 | Nil | — | — |
| India–US treaty — royalty / fees for included services | Article 12 | Unchanged | 15% (10% for equipment rental); FIS only if 'make available' | — | — |
| India–Singapore treaty — royalty / FTS | Article 12 | Unchanged | 10%; FTS only if 'make available' | — | — |
Domestic law: a wide net, a flat rate
Section 9 of the Income-tax Act, 2025 deems royalty and FTS to accrue in India when paid by an Indian resident (unless for a business or source outside India) or by a non-resident for a business or source in India. The statutory definitions are broad. Royalty covers consideration for the transfer of rights in, or use of, patents, inventions, designs, secret formulas, trademarks, copyright, and — by the 2012 explanations carried into the 2025 Act — the use of computer software and the use of or right to use industrial, commercial or scientific equipment, regardless of possession or location. FTS means consideration for managerial, technical or consultancy services, including the provision of technical personnel, but excluding construction and salary.
The rate for a non-resident (and foreign company) with no PE is 20% of the gross amount under section 207, plus surcharge and 4% cess, with no deduction for expenses. Where the royalty or FTS is effectively connected with the non-resident's PE in India, section 59 (old 44DA) taxes it on a net basis at the normal corporate rate.
Treaty law: narrower definitions and the make-available test
Royalty
Treaty royalty articles generally do not contain India's statutory extensions for software and equipment. The Supreme Court in Engineering Analysis Centre of Excellence v CIT (2021) held that payments by Indian end-users and distributors for the use of copyrighted software — shrink-wrap, licences, bundled software — are not royalty under the treaties, because no copyright right is transferred; they are business profits, taxable only if the non-resident has a PE in India. The decision applies to treaty-resident payees; the domestic definition still applies where no treaty is available or its conditions are not met. Payments for the right to exploit copyright (to reproduce and sell), for know-how, and for trademarks remain royalty under most treaties, taxed at 10% (Singapore, Germany, Netherlands, Japan, UAE) or 15% (US, with 10% for equipment rental).
Fees for technical / included services
Several of India's most-used treaties — United States, United Kingdom, Singapore, Canada, Australia, Netherlands and Portugal, among others — tax technical services only if they "make available" technical knowledge, experience, skill, know-how or processes, i.e. the recipient is enabled to apply the technology itself without recourse to the provider. Routine consulting, support, maintenance and managed services rarely meet the test; training, technology transfer and development of designs the payer will use do. Where the test fails, the fee is business profits under Article 7, taxable only through a PE. Treaties without an FTS article (for example, with the UAE, Mauritius in part, Philippines, Thailand) route technical services to business profits altogether. Treaties with a broad FTS article and no make-available clause (Germany, France via MFN debates, Japan) tax FTS at 10%.
Most-favoured-nation clauses
Some older treaties (Netherlands, France, Switzerland, Sweden) carry MFN protocols. The Supreme Court in Nestlé (2023) held that an MFN benefit requires a specific notification by India; it is not self-executing. Do not apply an MFN-reduced rate without checking for the notification.
The documents
| Document | Purpose | Notes |
|---|---|---|
| Tax Residency Certificate | Statutory condition for treaty relief (section 159) | Issued by the payee's home tax authority; must cover the period of payment; renew annually |
| Form 41 (old 10F) | Supplies particulars not in the TRC (status, nationality, TIN, period of residence, address) | Filed electronically by the non-resident on the Indian e-filing portal; a PAN is not required for the filing |
| No-PE declaration | Supports business-profits treatment under Article 7 | On the payee's letterhead, for the tax year, confirming no fixed place, dependent agent or service PE in India |
| Beneficial ownership / PPT comfort | Treaty anti-abuse | Particularly for conduit-type structures; the MLI principal-purpose test applies to most Indian treaties |
| Agreement and invoices | Nature of the payment | The CA certifying Form 146 classifies from these, not from the ledger description |
Equalisation levy: gone
The 2% levy on e-commerce supplies by non-resident operators was withdrawn for consideration received on or after 1 August 2024, and the 6% levy on online advertising services was withdrawn from 1 April 2025. Payments for online advertising and digital services are now tested only under the income-tax charge and GST reverse charge.
Worked example
An Indian company makes three payments in a quarter: (a) USD 100,000 annual subscription to a US SaaS platform used by its staff; (b) USD 50,000 to a German engineering firm for designing a production line, with drawings and know-how handed over; (c) USD 20,000 to a Singapore consultancy for a market study.
| Payment | Under the Act | Treaty analysis | Withholding |
|---|---|---|---|
| (a) SaaS subscription | Royalty (software) — 20%+ | India–US Art. 12: no copyright right transferred (Engineering Analysis); business profits; no PE | Nil — TRC, Form 41, no-PE declaration; Form 146 + 145 Part C |
| (b) Design with know-how transfer | FTS / royalty — 20%+ | India–Germany Art. 12: FTS at 10%, no make-available clause | 10% on USD 50,000, no surcharge/cess; Form 146 + 145 Part C |
| (c) Market study | FTS (consultancy) — 20%+ | India–Singapore Art. 12: consultancy does not make available technical knowledge; business profits; no PE | Nil with documents; Form 146 + 145 Part C (aggregate > ₹5 lakh) |
All three are imports of services for GST — IGST at 18% under reverse charge, creditable.
Common mistakes we see
- Treating every software or cloud payment as royalty at 20%, or every one as exempt — the answer depends on the treaty, the rights granted and the documents.
- Claiming a 'make available' exemption for training or technology-transfer services that plainly do make technology available.
- Accepting an expired TRC or no Form 41, then losing the treaty rate in a TDS audit.
- Applying an MFN-reduced rate without the Indian notification (Nestlé, 2023).
- Adding surcharge and cess to treaty rates, or omitting them from rates under the Act.
- Forgetting that a payee's project office, seconded staff or dependent agent in India can create a PE that converts gross-basis treaty relief into net-basis taxation under section 59.
Frequently asked questions
What is the TDS rate on royalty and technical fees paid to a foreign company?
20% of the gross amount plus surcharge and 4% cess under section 207 of the Income-tax Act, 2025 (old section 115A), unless a treaty provides a lower rate — commonly 10% or 15% — or exempts the payment.
What does 'make available' mean?
Under treaties such as India–US, India–UK and India–Singapore, technical services are taxable in India only if they transfer technical knowledge, skill or processes so that the recipient can apply them independently in future. Services consumed without such transfer are business profits, taxable only through a PE.
Are SaaS and software licence payments royalty?
Under domestic law, often yes. Under most treaties, payments for the use of copyrighted software without a transfer of copyright rights are business profits, per Engineering Analysis (Supreme Court, 2021). Check the treaty and the licence terms.
Is Form 10F still required?
Its successor, Form 41 under the Income-tax Rules, 2026, is required from tax year 2026-27, filed electronically by the non-resident on the e-filing portal together with the TRC.
Does the equalisation levy still apply to online advertising?
No. The 6% levy on online advertising was withdrawn from 1 April 2025, and the 2% e-commerce levy from 1 August 2024.
Can treaty relief be claimed without a PAN?
Yes. Rule 217 of the Income-tax Rules, 2026 (old Rule 37BC) allows the treaty rate without PAN where the payee provides name, email, contact number, address, TIN and TRC. Form 41 can be filed without a PAN.
What if the non-resident has a PE in India?
Royalty or FTS effectively connected with the PE is taxed on a net basis at the normal rate under section 59 (old 44DA), and the non-resident files an Indian return. Withholding then follows the PE's position, often with a section 395 certificate.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- Double Taxation Avoidance Agreements — Income Tax Department
- FAQs and guidance notes on forms under the Income-tax Rules, 2026 — Income Tax Department
- e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications
Last reviewed on 1 November 2026 by Vidushi Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
