Sec 195
This query is : Resolved
03 January 2013
Whether tds is to be deducted for annual fees invoice raised by non resident (USA)? Is there any DTAA? what rate to be deducted?
03 January 2013
Whether TDS is to be deducted for annual fees invoice raised by the non-resident based in USA would be dependent on the nature of services for which the fees are being charged. A brief description of the services along with the basic facts would help in providing you an opinion on the same.
There is a DTAA between India and USA.
The rate of tax to be deducted would depend on the nature of services rendered and its consequent classification under the various heads of income under the Income Tax Act and the relevant DTAA
Request you to provide as much information as possible.
There is a DTAA between India and USA.
The rate of tax to be deducted would depend on the nature of services rendered and its consequent classification under the various heads of income under the Income Tax Act and the relevant DTAA
Request you to provide as much information as possible.
03 January 2013
Whether annual fee will liable for tds?
23 July 2025
You're asking whether **TDS is applicable** on **annual fees paid to a non-resident in the USA**, and if there's a **Double Taxation Avoidance Agreement (DTAA)** that applies.
Here's a detailed breakdown based on Indian tax law:
---
### ✅ **Short Answer**:
**Yes**, TDS **may be applicable** on annual fees paid to a **non-resident**, **depending on the nature of the service**. The applicable TDS rate would depend on:
1. **Whether the payment is taxable in India under the Income-tax Act, 1961**
2. **The DTAA between India and the USA**
3. **Whether the non-resident has a PAN**
4. **Whether the service falls under "Fees for Technical Services (FTS)" or "Royalty"**
---
### 🇮🇳 Under the Income-tax Act (Sec. 195):
* Any sum paid to a **non-resident** that is **chargeable to tax in India** is subject to **TDS u/s 195**.
* Common heads under which TDS may be attracted:
* **Fees for Technical Services (FTS)** – Sec. 9(1)(vii)
* **Royalty** – Sec. 9(1)(vi)
* **Business income** – only taxable if the non-resident has a **Permanent Establishment (PE)** in India.
---
### 🇮🇳🤝🇺🇸 India-USA DTAA:
Yes, India and the USA **do have a DTAA**. Relevant articles:
* **Article 12** – Royalties and Fees for Included Services (FIS)
* **Article 7** – Business Profits
---
### 📌 Key Terms:
* **Fees for Included Services (FIS)** under Article 12 of DTAA includes services that:
* Make available technical knowledge, skill, experience, etc. to the payer (**"make available" clause**)
* Or are ancillary and subsidiary to the enjoyment of royalty
👉 So if the service **just involves rendering support** without making the payer **self-reliant**, it may **not be taxable** under DTAA even if taxable under Indian domestic law.
---
### 🧾 Examples:
| Nature of Service | TDS under IT Act | DTAA Applicability (USA) | TDS Rate |
| ---------------------- | -------------------------------- | ------------------------------------ | -------- |
| Software license | Yes (Royalty) | Yes (Article 12) | 10-15% |
| IT support/consultancy | Maybe (FTS) | Only if "make available" test passed | 10-15% |
| Cloud subscription fee | Disputed; may fall under royalty | Possibly under DTAA | 10-15% |
| Pure business income | Yes under IT Act | Not taxable if no PE in India | NIL |
---
### 📑 Documentation Needed for DTAA Benefit:
To deduct tax at **DTAA rates**, the **non-resident must provide**:
1. **Tax Residency Certificate (TRC)**
2. **Form 10F**
3. **Self-declaration** of beneficial ownership and no PE in India
---
### ⚠️ If PAN Not Provided:
* As per **Section 206AA**, if the non-resident does **not furnish PAN**, TDS must be at **20%** or the applicable DTAA rate, **whichever is higher**, unless TRC + Form 10F are submitted.
---
### ✅ Conclusion:
* **TDS is likely required**, but the **rate and applicability** depend on the **nature of service** and **DTAA terms**.
* If the services are:
* **Technical / consultancy** → Evaluate if it "makes available" know-how
* **Business income only** with **no PE** → May be exempt under DTAA
* **Rate**: Generally **10% to 15%** under DTAA (with TRC), otherwise 20%+
---
### 📌 Next Steps:
Please share:
* What the **"annual fee"** is for — e.g., software, consultancy, subscription?
* Is there a **service contract** or **invoice description**?
* Is the non-resident giving a **TRC / Form 10F**?
I can then help you confirm:
* Whether TDS is needed
* What section applies
* What rate to apply
Let me know and I’ll guide you further.
Here's a detailed breakdown based on Indian tax law:
---
### ✅ **Short Answer**:
**Yes**, TDS **may be applicable** on annual fees paid to a **non-resident**, **depending on the nature of the service**. The applicable TDS rate would depend on:
1. **Whether the payment is taxable in India under the Income-tax Act, 1961**
2. **The DTAA between India and the USA**
3. **Whether the non-resident has a PAN**
4. **Whether the service falls under "Fees for Technical Services (FTS)" or "Royalty"**
---
### 🇮🇳 Under the Income-tax Act (Sec. 195):
* Any sum paid to a **non-resident** that is **chargeable to tax in India** is subject to **TDS u/s 195**.
* Common heads under which TDS may be attracted:
* **Fees for Technical Services (FTS)** – Sec. 9(1)(vii)
* **Royalty** – Sec. 9(1)(vi)
* **Business income** – only taxable if the non-resident has a **Permanent Establishment (PE)** in India.
---
### 🇮🇳🤝🇺🇸 India-USA DTAA:
Yes, India and the USA **do have a DTAA**. Relevant articles:
* **Article 12** – Royalties and Fees for Included Services (FIS)
* **Article 7** – Business Profits
---
### 📌 Key Terms:
* **Fees for Included Services (FIS)** under Article 12 of DTAA includes services that:
* Make available technical knowledge, skill, experience, etc. to the payer (**"make available" clause**)
* Or are ancillary and subsidiary to the enjoyment of royalty
👉 So if the service **just involves rendering support** without making the payer **self-reliant**, it may **not be taxable** under DTAA even if taxable under Indian domestic law.
---
### 🧾 Examples:
| Nature of Service | TDS under IT Act | DTAA Applicability (USA) | TDS Rate |
| ---------------------- | -------------------------------- | ------------------------------------ | -------- |
| Software license | Yes (Royalty) | Yes (Article 12) | 10-15% |
| IT support/consultancy | Maybe (FTS) | Only if "make available" test passed | 10-15% |
| Cloud subscription fee | Disputed; may fall under royalty | Possibly under DTAA | 10-15% |
| Pure business income | Yes under IT Act | Not taxable if no PE in India | NIL |
---
### 📑 Documentation Needed for DTAA Benefit:
To deduct tax at **DTAA rates**, the **non-resident must provide**:
1. **Tax Residency Certificate (TRC)**
2. **Form 10F**
3. **Self-declaration** of beneficial ownership and no PE in India
---
### ⚠️ If PAN Not Provided:
* As per **Section 206AA**, if the non-resident does **not furnish PAN**, TDS must be at **20%** or the applicable DTAA rate, **whichever is higher**, unless TRC + Form 10F are submitted.
---
### ✅ Conclusion:
* **TDS is likely required**, but the **rate and applicability** depend on the **nature of service** and **DTAA terms**.
* If the services are:
* **Technical / consultancy** → Evaluate if it "makes available" know-how
* **Business income only** with **no PE** → May be exempt under DTAA
* **Rate**: Generally **10% to 15%** under DTAA (with TRC), otherwise 20%+
---
### 📌 Next Steps:
Please share:
* What the **"annual fee"** is for — e.g., software, consultancy, subscription?
* Is there a **service contract** or **invoice description**?
* Is the non-resident giving a **TRC / Form 10F**?
I can then help you confirm:
* Whether TDS is needed
* What section applies
* What rate to apply
Let me know and I’ll guide you further.
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