We are the USA and India ( 50:50 ) joint venture company, we will pay the Royalty and Technical service fee to the foreign company. Pls advice what is rate of Withholding tax rate. We deducted the rate of Withholding tax IT 10% +SC10%+Cess & SHE Cess 3%. It is correct?. Pls attach relevant notification.
We are the USA and India ( 50:50 ) joint venture company, we will pay the Royalty and Technical service fee to the foreign company. Pls advice what is rate of Withholding tax rate. We deducted the rate of Withholding tax IT 10% +SC10%+Cess & SHE Cess 3%. It is correct?. Pls attach relevant notification.
03 August 2025
Here's a detailed explanation regarding withholding tax rates on Royalty and Technical Service Fees under the India-USA DTAA:
1. Withholding Tax Rate on Royalty under India-USA DTAA As per the India-USA Double Taxation Avoidance Agreement (DTAA), Article 12 (Royalties and Fees for Technical Services), the withholding tax rate on royalties is 10%.
This is the maximum rate India can charge for withholding tax on royalties paid to a US resident under the DTAA.
2. Withholding Tax on Technical Services Fees The term "Fees for Technical Services" (FTS) is not explicitly mentioned in the India-USA DTAA because the agreement follows the OECD Model Convention, which treats such payments under the "Royalties" article or Business Profits.
If the technical services are "royalty-like" in nature, the withholding tax rate would be 10% on royalties.
If the technical service fees are not classified as royalties, then taxation depends on whether the recipient has a Permanent Establishment (PE) in India:
No PE: No Indian tax on business profits; no withholding.
With PE: Taxed as business profits, no withholding at source unless specified.
3. Surcharge and Cess Surcharge (10%) and Health & Education Cess (3%) are applicable on the tax amount.
So, if the withholding tax is 10%, then:
Surcharge = 10% of 10% = 1%
Cess = 3% of (10% + 1%) = approx 0.33%
Total tax = ~11.33% approximately (on gross amount).
4. Summary of Rates Payment Type Basic Rate under DTAA Surcharge Cess Effective Rate (Approx) Royalty (US Resident) 10% 10% 3% ~11.33% Technical Service Fees Depends on classification and PE presence. See above.
5. Relevant Notifications The withholding tax rate under DTAA is notified by CBDT through various notifications; for USA DTAA, refer to:
Notification No. 74/2012, dated 20th November 2012 – prescribing rates of TDS as per various DTAAs.
Also see Section 90 of the Income Tax Act, 1961 – deals with agreements for avoidance of double taxation.
6. Is Your Deduction Correct? Deducting 10% tax + 10% surcharge + 3% cess on royalty is in line with the DTAA rates and Indian law.
For technical service fees, please verify the nature of payment and existence of PE before deducting tax.
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