pri Foreign Remittances | Fees for Technical Services | TDS Requirement Foreign Remittances | Fees for Technical Services | TDS Requirement

Foreign Remittances – Fees for Technical Services-Whether a TDS is always required under Indian Income Tax Act?

This article is meant to be a tool of understanding the basics of TDS on Fees for Technical Services when paid out of India. It should prove usefull for both tax professionals and also for non tax professionals/entrepreneurs , as in number of cases foreign remittances TDS results in unnecessarily increasing cost of transaction for Indian entity. This article is in continuation of my earlier article about TDS u/s. 195 in respect of payments to Foreign Professionals- Independent Personal Service.

Basic Concepts

Sec. 195 of the Indian Income tax Act (the Act), requires TDS from a payment to a non resident (NR) ONLY if the same is taxable in India in the hands of NR. As per scheme of the act, this taxability in India is to be decided in two stages :

  • First with reference to the Act
  • and then with reference to the Tax treaty/Double Taxation Avoidance Agreement (DTAA) which India has with the country of residence of the NR receiver.

(For our purposes Tax treaty and DTAA connotes the same thing and in this article these two terms have been used interchangeably)

With respect to this TDS u/s. 195, Fees for Technical Services (FTS) is quite an intricate concept. There are 2 specific aspects, which lead to this complication:

1. The way Fees for Technical Services has been defined in the Income tax act is quite generic, and income tax authorities in number of cases tend to categorise payment for almost all types of services as FTS payment. (So much so that in certain cases, they have tried to treat even business commission as Fees for Technical Services)

2. If the payment is in the nature of Business income of NR recipient, it requires a TDS only when the NR recipient has a Business Connection/Permanent Establishment (PE) in India. However if the payment is treated as FTS then regardless of the Permanent Establishment in India, a TDS is required u/s. 195. So a distinction between payment being Business Income or FTS in the hands of NR recipient becomes quit crucial.

To understand the intricacies of FTS vis-a-vis TDS U/s. 195, the most important point to note is that despite a payment being treated as FTS as per the Income tax Act, the same may not be treated as FTS in relevant DTAA and as such TDS may not be required. The cardinal principal in this regard is that for foreign remittance taxation, the Income tax act or DTAA, whichever is beneficial, shall prevail.

Fees for Technical Services – As per Indian Income Tax Act

As per Sec. 9(1)(vii) of the act, if a payment is in the nature of FTS, , it is taxable in India regardless of any business connection/ permanent establishment of receiver in India (except when the payment is for any business of the payer being run outside of India).

FTS has been defined in Sec. 9 to mean “consideration for any technical, managerial or consultancy services”. Thus the moment there is any technical, managerial or consultancy aspect involved in any service, it is possible to argue that it is a Technical Service.

For example : Testing of a product in a US laboratory and payment of Lab charges for the same may be categorized as a payment for FTS as per Sec. 9 of the Income tax act. At this point, it may look like it is taxable in India and accordingly a TDS is required from this payment.

However, as mentioned above, what is very interesting to understand (and what can be called typical twists of law) is that the same transaction, which is FTS as per the Income tax act, when seen from the lens of DTAA, may not remain FTS and as such may not remain liable for TDS.

Fees for Technical Services – As per DTAA

When we see the concept of FTS with this lens of DTAA, 2 interesting pictures emerge

1. In certain DTAAs, a service is treated as Technical Services only when it makes available technical knowledge to the service receiver. In such DTAAs, FTS has been couched in the concept of “Make Available”

2. In certain DTAAs, there is no FTS clause at all.

Both these situations may affect the applicability of TDS in a significant manner.

FTS and concept of Make Available

India’s DTAA with various countries ( US and UK are main amongst them- US DTAA calls it “Fees for Included Services”) treats a payment for a service as Fees for Technical Service only when it is “for the rendering of any technical or consultancy services” AND such services :

  • are either linked with enjoyment of some rights etc. for which a separate royalty is being paid or
  • make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.

This is the 2nd clause i.e. condition of make available, which is relevant for our discussion here. Following aspects emerge from this concept of “make available”.

  • Mere provision of technical services is not enough to attract article of FTS in these DTAA.
  • It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how etc., known to the recipient of the service, so as to equip him to independently perform the technical function himself in future, without the help of the service provider.
  • Payment of consideration would be regarded as ‘fee for technical’ under relevant DTAA only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.

Re CIT vs. De Beers India Minerals Pvt Ltd (Karnataka High Court), AC Nielsen Corporation vs DCIT (ITAT Mumbai), ITA No. 7216/Mum/2017, 22/07/2019

Protocol attached with Indo US tax treaty explains the concept of “Make available” in following words :

“Provision of service requiring technical input by the service provider does not per se mean that technical knowledge is made available to purchaser. Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. Technology is considered as “made available” when person acquiring the service is able to apply the technology in an independent manner.”

Thus when payment is to a country like US or UK (where DTAA contain “make available” concept for FTS), what is required to be seen is that if only a technical service has been provided but no technical knowledge has been made available to the service receiver, this will not be categorized as FTS as per DTAA. In such case, income shall be in the nature of business profits for the receiver and in absence of permanent establishment of in India, the income shall not be liable for TDS u/s. 195.

Two examples given in the Protocol attached with Indo US DTAA should help our understanding about concept of “Make Available” : (US DTAA refers to FTS as “Fees for Included Services”)

Facts :

A U.S. manufacturer operates a wallboard fabrication plant outside India. An Indian builder hires the U.S. company to produce wallboard at that plant for a fee. The Indian company provides the raw materials, and the U.S. manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services ?

Analysis :

The fees would not be for included services. Although the U.S. company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plant or design. The U.S. company is merely performing a contract manufacturing service.

Facts :

The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product worldwide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the U.S. company for included services?

Analysis :

The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b).

No FTS clause in DTAA

There are certain Tax treaties where FTS clause is not at all there. India’s tax treaty with Philippines, Thailand, Indonesia, Bangladesh, UAE and Egypt are some of the examples where DTAAs do not contain FTS clause.

Judiciary has held that in all such cases also, treatment of FTS in DTAA shall be as per Article dealing with business profit and accordingly FTS shall be taxable in India only when service provider has PE in India. (Ref. DCIT vs. M/s. IBM India Pvt. Ltd. (ITAT Banglore), IT(IT)A Nos.1288, 1291, 1294, 1297, 1300, 1303 & 1306/Bang/2017, Dated- 16.11.2018

Thus, in such cases also, even if a payment gets categorized as FTS as per Sec. 9 of the Income tax act, due to absence of FTS clause in relevant DTAA, it shall be business profit in the hands of recipient and accordingly shall be liable for TDS u/s. 195 ONLY IF recipient have a PE in India.


The sum and substance of above discussion is that due to the generic nature of definition of Fees for Technical Services, as obtained in the Indian Income tax act, various payments to a Non resident get categorized as FTS, requiring a TDS u/s. 195 even if the NR recipient does not have any Permanent Establishment in India. However, when the same payments are analyzed with reference to Indian DTAAs with other countries, it is quite possible that, due to “make available” condition or due to absence of FTS clause in respective DTAA, in a number of cases payment may not remain liable for TDS in India.

(The author can be reached at or on +91 98260 46463 for any queries)

Author Bio

More Under Income Tax


  1. SRIDHAR says:

    Dear Sir,

    I received part of the FY-2020-2021 income as salary from an employer; part of the income by working as an independent contractor. I have more than 1 house rent as income. Which ITR to be used for filing for the AY 2021-22 for the above situation?
    K. Sridhar

  2. SRIDHAR says:

    Dear Sir,

    I am an independent Contractor delivering the software development services from India to my client in US. My services are billed monthly in Foreign exchange currency against my invoice and settled in my current account in India. No TDS or TCS is involved in this service as the Client is a US registered Company and I am rendering services directly to this Company.
    My question are:

    a) Is my income to be classified as Professional business income?
    b) Does this come under the preview of Income Tax and liable for TDS or TCS or any other equivalent tax under which section?
    b) How do I remit the Income Tax if applicable and at what rate?

    Thanks & Regards,
    K. Sridhar


    Hello sir. I AM WORKING in a construction company in India. We are hiring machinery like JCB, EXCAVATOR from Bhutan…
    I want to know what will be the TDS deduction rate while making payment to Bhutan Machinery owners.
    Note : There is a DTAA between India and Bhutan.

    Also mention do They required to have PAN in India or TRC is sufficient.
    Waiting for response.
    Thanks in Advance


    Dear Sir. If I am rendering Consultancy service to overseas clients on regular basis. I am getting my FTS in Euro via Banking channel. Is such income is taxale and clubbed with my other income. I show such income as Income from business and profession. Please clarify. Am I entitled for deduction of expenses u/s 44DA as 50% being Mechanical Engineer & MBA. Thanks for your kind reply. Rgds

  5. Sumit says:

    I want to pay uk company for using there brand name and rights in india. Against that I have to pay them a sum of amount and royalty. How to make tds provision in such transactions and how to deduct and file tds in this case in absence of pan no of uk company. They don’t have any direct establishment in india

  6. sapna says:

    One of our client wants to pay to USA Company for services of using Intellectual Property rights and royalty. How tds provisions applicable in such transaction and how to file TDS return in absence of PAN no. of USA company. USA company have no Permanent Establishment in India.
    Please suggest.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

July 2021