In today’s globalized business environment, Indian companies frequently collaborate with foreign entities for access to technology, expertise, and specialized services. Such cross-border transactions often involve royalty payments and fees for technical services (FTS).
Under the Income Tax Act, 1961, particularly Section 9(1)(vi) and Section 9(1)(vii), these payments are deemed to accrue or arise in India if they are made by:
The Government of India, or
A resident (in most cases), or
A non-resident, where services or rights are utilized in India.
This makes them subject to Indian taxation, irrespective of where the payment is made.
Royalty refers to payments made for the use of:
Patents, trademarks, copyrights
Technical know-how, designs, or processes
Transfer of rights in respect of intellectual property
💡 Example: An Indian software company paying license fees to a US company for using its patented software.
FTS refers to payments made for:
Managerial services
Technical services
Consultancy services
💡 Example: An Indian manufacturing company engaging a German consultant for setting up advanced machinery.
Deemed Accrual in India
If the service or right is utilized in India, the income is taxable in India even if paid abroad.
Withholding Tax
As per Section 195, tax must be deducted at source (TDS) before making payments to non-residents.
Applicable Tax Rates
Under the Income Tax Act: 10% (plus surcharge & cess)
Under DTAA: Lower rates may apply (commonly 10% or 15%).
Relief Under DTAA
Double Tax Avoidance Agreements (DTAAs) signed between India and various countries can provide tax relief and avoid double taxation.
Determining whether a service qualifies as “technical service” or not.
Applying the correct TDS rate (Act vs DTAA).
Ensuring proper documentation like Form 15CA/CB.
Handling disputes with tax authorities in case of differing interpretations.
At Kartik M Jain & Associates, Chartered Accountants, we provide expert guidance on:
✅ Structuring cross-border contracts to ensure tax efficiency
✅ DTAA interpretation and application of concessional tax rates
✅ TDS compliance, Form 15CA/CB certification
✅ Advisory and representation before tax authorities
Our team ensures your business remains compliant while minimizing unnecessary tax burdens.
Royalties and Fees for Technical Services form a significant part of cross-border taxation in India. Businesses must ensure proper compliance with Section 9, TDS rules, and DTAA provisions to avoid penalties and litigation. Professional advice is the key to optimizing tax efficiency while staying compliant.