Rate of tds on foreign payment for data base access facility
This query is : Resolved
VIJAY GOHIL
(Querist)
10 November 2014
Respected Sir/MEdam,I have one qwery about how much TDS should be deducted on foreign payment to USA base company for Data base Access Facility in India.
Indian Concern is Partnership Firm.
Foreign Entity is fully exemted from Tax in USA.
Foreign Entity does not have permanent Establishment in India.
Service of This Facility do not meet the definition of Royalties as per Article 12 paragraph 3(a)(b) of the U.S.–India Tax Treaty.
Read more at: https://www.caclubindia.com/experts/ask_query.asp
Indian Concern is Partnership Firm.
Foreign Entity is fully exemted from Tax in USA.
Foreign Entity does not have permanent Establishment in India.
Service of This Facility do not meet the definition of Royalties as per Article 12 paragraph 3(a)(b) of the U.S.–India Tax Treaty.
Read more at: https://www.caclubindia.com/experts/ask_query.asp
VIJAY GOHIL
(Querist)
10 November 2014
Foreign Entity has Indian PAN Also.
20 July 2025
For TDS on foreign payment for database access facility (to a USA-based company), here are the key points:
1. Nature of Payment
Database access fees are generally treated as Fees for Technical Services (FTS) or Royalty under Indian tax law depending on facts.
However, you mention that this payment does NOT qualify as Royalty under the India-USA DTAA (Article 12 para 3(a)(b)).
So, it’s likely treated as Fees for Technical Services or "other services" for TDS purpose.
2. TDS Rate under Indian Income Tax Act
Section 195 governs TDS on payments to non-residents.
If the payment is not royalty and is for technical services (but not specifically exempt), the usual TDS rate is 10% on gross payment (subject to DTAA benefits).
3. Impact of DTAA (India-USA Tax Treaty)
As per DTAA, if the foreign entity does not have a Permanent Establishment (PE) in India, and the payment is not royalty, the TDS may still be applicable at reduced rates (usually 10% or lower).
Since foreign entity is fully exempt in the USA and holds Indian PAN, you can apply the DTAA benefit and deduct TDS at 10%.
4. Practical Considerations
Deduct TDS under Section 195 at 10% on gross payment.
Ensure proper documentation:
Foreign entity’s tax residency certificate from USA
No PE declaration
Form 10F and other treaty documents
File TDS returns accordingly.
1. Nature of Payment
Database access fees are generally treated as Fees for Technical Services (FTS) or Royalty under Indian tax law depending on facts.
However, you mention that this payment does NOT qualify as Royalty under the India-USA DTAA (Article 12 para 3(a)(b)).
So, it’s likely treated as Fees for Technical Services or "other services" for TDS purpose.
2. TDS Rate under Indian Income Tax Act
Section 195 governs TDS on payments to non-residents.
If the payment is not royalty and is for technical services (but not specifically exempt), the usual TDS rate is 10% on gross payment (subject to DTAA benefits).
3. Impact of DTAA (India-USA Tax Treaty)
As per DTAA, if the foreign entity does not have a Permanent Establishment (PE) in India, and the payment is not royalty, the TDS may still be applicable at reduced rates (usually 10% or lower).
Since foreign entity is fully exempt in the USA and holds Indian PAN, you can apply the DTAA benefit and deduct TDS at 10%.
4. Practical Considerations
Deduct TDS under Section 195 at 10% on gross payment.
Ensure proper documentation:
Foreign entity’s tax residency certificate from USA
No PE declaration
Form 10F and other treaty documents
File TDS returns accordingly.
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