Tds on technical fees to non-resident
This query is : Resolved
Heera Nahariya
(Querist)
11 March 2014
Dear all Experts....Greetings of the day!!!
Facts of the case....
A limited company has paid technical fees for installation of plant & machinery to a NON-RESIDENT. The said non-resident belongs to USA. India is having DTAA with USA.
I want to know what would be TDS rate?
Facts of the case....
A limited company has paid technical fees for installation of plant & machinery to a NON-RESIDENT. The said non-resident belongs to USA. India is having DTAA with USA.
I want to know what would be TDS rate?
11 March 2014
then DTAA should be checked for this case.
Heera Nahariya
(Querist)
11 March 2014
but sir I want complete clarification
27 July 2025
Sure! Here's a detailed clarification on **TDS on technical fees paid to a non-resident (USA)**:
---
### 1. **Relevant Section under Indian Law:**
* Payment of **technical fees** to a non-resident falls under **Section 195 of the Income Tax Act, 1961** (TDS on payments to non-residents).
* Such fees are typically classified as **Royalty or Fees for Technical Services (FTS)** depending on the nature of service.
### 2. **Definition of Technical Fees / FTS:**
* As per Indian tax law (Section 9(1)(vi)), fees for technical services mean consideration for the rendering of any managerial, technical, or consultancy services (excluding fees for professional services).
* In your case, the fees are for **installation of plant & machinery**, which generally qualifies as **Technical Services**.
### 3. **TDS Rate as per Domestic Law:**
* Without DTAA, TDS rate on **Fees for Technical Services** is **10%** plus applicable surcharge and cess.
* For **Royalty** also, it is 10%.
### 4. **Effect of DTAA between India and USA:**
* The India-USA DTAA (Double Taxation Avoidance Agreement) governs taxability to avoid double taxation.
* Article 12 of the India-USA DTAA deals with **Royalties and Fees for Technical Services**.
* According to the DTAA, the rate on FTS (Technical fees) is capped at **10%** of the gross amount (some versions might specify the exact rate; usually, it's 10%).
### 5. **Taxability Conditions:**
* The DTAA provides that technical fees are taxable only if the services are utilized in India or if the non-resident has a permanent establishment (PE) in India to which the fees are attributable.
* Installation services usually imply usage in India, so taxable.
### 6. **Which Rate to Apply?**
* Apply the **lower of the two rates** — the DTAA rate or the Indian domestic rate.
* In this case, both are 10%, so TDS @ 10% (plus surcharge and cess) is applicable.
### 7. **Procedure:**
* Deduct TDS at 10% on the gross technical fees.
* File form 27Q for non-resident payments.
* Obtain a **Tax Residency Certificate (TRC)** from the non-resident to avail DTAA benefits.
* The non-resident can claim credit for this tax in their home country.
---
### **Summary:**
| Aspect | Details |
| ---------------------- | -------------------------------------------------- |
| Payment to | Non-resident company (USA) |
| Nature of payment | Technical fees for installation services |
| Domestic TDS Rate | 10% + surcharge and cess |
| DTAA Rate (India-USA) | 10% (generally) |
| TDS Rate to Deduct | 10% (applicable rate as per DTAA and domestic law) |
| Documentation Required | TRC from USA company |
---
If you want, I can help draft a template for **Form 15CA/15CB** or the declaration for the non-resident.
---
Do you want me to help with that?
---
### 1. **Relevant Section under Indian Law:**
* Payment of **technical fees** to a non-resident falls under **Section 195 of the Income Tax Act, 1961** (TDS on payments to non-residents).
* Such fees are typically classified as **Royalty or Fees for Technical Services (FTS)** depending on the nature of service.
### 2. **Definition of Technical Fees / FTS:**
* As per Indian tax law (Section 9(1)(vi)), fees for technical services mean consideration for the rendering of any managerial, technical, or consultancy services (excluding fees for professional services).
* In your case, the fees are for **installation of plant & machinery**, which generally qualifies as **Technical Services**.
### 3. **TDS Rate as per Domestic Law:**
* Without DTAA, TDS rate on **Fees for Technical Services** is **10%** plus applicable surcharge and cess.
* For **Royalty** also, it is 10%.
### 4. **Effect of DTAA between India and USA:**
* The India-USA DTAA (Double Taxation Avoidance Agreement) governs taxability to avoid double taxation.
* Article 12 of the India-USA DTAA deals with **Royalties and Fees for Technical Services**.
* According to the DTAA, the rate on FTS (Technical fees) is capped at **10%** of the gross amount (some versions might specify the exact rate; usually, it's 10%).
### 5. **Taxability Conditions:**
* The DTAA provides that technical fees are taxable only if the services are utilized in India or if the non-resident has a permanent establishment (PE) in India to which the fees are attributable.
* Installation services usually imply usage in India, so taxable.
### 6. **Which Rate to Apply?**
* Apply the **lower of the two rates** — the DTAA rate or the Indian domestic rate.
* In this case, both are 10%, so TDS @ 10% (plus surcharge and cess) is applicable.
### 7. **Procedure:**
* Deduct TDS at 10% on the gross technical fees.
* File form 27Q for non-resident payments.
* Obtain a **Tax Residency Certificate (TRC)** from the non-resident to avail DTAA benefits.
* The non-resident can claim credit for this tax in their home country.
---
### **Summary:**
| Aspect | Details |
| ---------------------- | -------------------------------------------------- |
| Payment to | Non-resident company (USA) |
| Nature of payment | Technical fees for installation services |
| Domestic TDS Rate | 10% + surcharge and cess |
| DTAA Rate (India-USA) | 10% (generally) |
| TDS Rate to Deduct | 10% (applicable rate as per DTAA and domestic law) |
| Documentation Required | TRC from USA company |
---
If you want, I can help draft a template for **Form 15CA/15CB** or the declaration for the non-resident.
---
Do you want me to help with that?
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