Withholding Tax
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
17 February 2011
Company A (India) paying Fees for technical services to Compnay B (Germany,
both are related party as per transfer pricing provision.
Fees for technical services are charged on Cost + profit method.
on what amount tax should be deducted i.e on whole amount or just on profit portion?
Pls. provide link where i can get material on DTAA + related case laws.
both are related party as per transfer pricing provision.
Fees for technical services are charged on Cost + profit method.
on what amount tax should be deducted i.e on whole amount or just on profit portion?
Pls. provide link where i can get material on DTAA + related case laws.
18 February 2011
Hi,
Will get back to you with complete info & workings,
Regards
CA. LOHITH.J
B.Com,ACA,CS,(ICWA),SAPM Hons,ITF Hons
Will get back to you with complete info & workings,
Regards
CA. LOHITH.J
B.Com,ACA,CS,(ICWA),SAPM Hons,ITF Hons
03 August 2025
Hey! On your question about withholding tax on Fees for Technical Services (FTS) paid by Company A (India) to related Company B (Germany):
Tax Deduction on FTS - What amount?
Under Indian domestic law (Section 195), tax is generally deducted on the gross amount payable for technical services — i.e., the entire invoice amount including both cost and profit.
The fact that fees are charged on Cost + Profit as per transfer pricing doesn't reduce the withholding tax base. TDS applies on full payment.
There is no separate TDS only on profit portion. The tax authorities treat the entire amount as income chargeable in India (subject to DTAA and other provisions).
DTAA Between India & Germany:
The DTAA may provide for a lower withholding tax rate on fees for technical services.
You must apply the DTAA rate, provided Company B furnishes a valid Tax Residency Certificate (TRC) and follows other procedural compliances (like Form 15CA/15CB).
The definition of Fees for Technical Services in the treaty may differ; some DTAA treaties have limited scope on FTS (e.g., only managerial or technical services). This can affect withholding tax applicability.
Resources and Case Laws:
For DTAA text between India & Germany, you can refer to:
Income Tax Department’s DTAA webpage
India-Germany DTAA PDF (Check updated link on IT department site)
For case laws and interpretations:
Landmark cases on FTS and withholding tax:
Tata Consultancy Services Ltd. v. State of Andhra Pradesh (SC) — on applicability of FTS
CIT vs. Siemens Aktiengesellschaft (SC) — on fees for technical services and royalty
CIT vs. Azadi Bachao Andolan — on DTAA applicability
You can check summaries on Taxmann, SCC Online, or Judis.nic.in.
For Transfer Pricing and related party payments:
Refer to the Income Tax Act, Sections 92-92F.
The CBDT Transfer Pricing guidelines and rulings.
Summary:
Aspect Amount on which TDS applies
Technical Services Fees Gross payment (cost + profit)
DTAA benefit Apply reduced rate if applicable
Compliance documents TRC, 15CA/15CB forms
Tax Deduction on FTS - What amount?
Under Indian domestic law (Section 195), tax is generally deducted on the gross amount payable for technical services — i.e., the entire invoice amount including both cost and profit.
The fact that fees are charged on Cost + Profit as per transfer pricing doesn't reduce the withholding tax base. TDS applies on full payment.
There is no separate TDS only on profit portion. The tax authorities treat the entire amount as income chargeable in India (subject to DTAA and other provisions).
DTAA Between India & Germany:
The DTAA may provide for a lower withholding tax rate on fees for technical services.
You must apply the DTAA rate, provided Company B furnishes a valid Tax Residency Certificate (TRC) and follows other procedural compliances (like Form 15CA/15CB).
The definition of Fees for Technical Services in the treaty may differ; some DTAA treaties have limited scope on FTS (e.g., only managerial or technical services). This can affect withholding tax applicability.
Resources and Case Laws:
For DTAA text between India & Germany, you can refer to:
Income Tax Department’s DTAA webpage
India-Germany DTAA PDF (Check updated link on IT department site)
For case laws and interpretations:
Landmark cases on FTS and withholding tax:
Tata Consultancy Services Ltd. v. State of Andhra Pradesh (SC) — on applicability of FTS
CIT vs. Siemens Aktiengesellschaft (SC) — on fees for technical services and royalty
CIT vs. Azadi Bachao Andolan — on DTAA applicability
You can check summaries on Taxmann, SCC Online, or Judis.nic.in.
For Transfer Pricing and related party payments:
Refer to the Income Tax Act, Sections 92-92F.
The CBDT Transfer Pricing guidelines and rulings.
Summary:
Aspect Amount on which TDS applies
Technical Services Fees Gross payment (cost + profit)
DTAA benefit Apply reduced rate if applicable
Compliance documents TRC, 15CA/15CB forms
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