International Tax Services — Treaties, Withholding and Cross-Border Structures
Characterisation before the contract, residency documentation before the payment, and a defensible position when the assessment arrives four years later
Cross-border tax questions in India rarely announce themselves. A software company pays a foreign vendor for a licence and has to decide whether it is a royalty. A consultancy engages an overseas specialist and has to decide whether to withhold twenty per cent or ten. A foreign parent seconds an employee to its Indian subsidiary and, without anyone intending it, creates a permanent establishment.
Each of these is decided by the interaction of domestic charging provisions with a treaty, and the answer frequently depends on documentation that had to be in place before the payment was made. A residency certificate obtained after the remittance does not retrospectively fix a withholding position, and the payer, not the recipient, carries the liability.
N D Savla & Associates advises Indian businesses making cross-border payments, foreign companies with Indian operations or customers, and individuals with income in more than one country. We handle the treaty analysis, the withholding position, the remittance certification, permanent establishment risk and the foreign tax credit claims that follow.
What Does International Tax Cover?
At its core, one question: which country gets to tax a given item of income, and at what rate. Indian law answers it in two layers. Domestic provisions establish the charge by reference to residence and source. A treaty, where one applies, then limits that charge — and a taxpayer may choose whichever of the two is more beneficial.
The practical work divides into recognisable areas:
- Residence and scope — who is taxable on worldwide income and who only on Indian-source income
- Source rules — when income is treated as accruing or arising in India, including through business connection and significant economic presence
- Treaty application — which article governs, what rate applies, and what documentation is needed to claim it
- Withholding on payments to non-residents — the obligation that falls on the Indian payer for any sum chargeable to tax
- Permanent establishment — whether a foreign enterprise has crossed the threshold at which India may tax its business profits
- Transfer pricing — whether transactions between associated enterprises are at arm’s length, addressed through transfer pricing services
- Foreign tax credit — relief for a resident who has paid tax abroad on the same income
What Rates and Thresholds Apply?
| Payment to a non-resident | Domestic position | Typical treaty position |
|---|---|---|
| Royalty | Taxed on gross basis at the specified rate, increased to 20% from 1 April 2023 | Commonly around 10%, subject to the specific treaty |
| Fees for technical services | Taxed on gross basis at the same specified rate | Commonly around 10%, often with a make-available condition |
| Interest | Rate varies by the nature of the borrowing and the lender | Frequently 10% to 15%, with exemptions for specified lenders |
| Dividend | Taxable in the shareholder’s hands with withholding applied | Frequently 5% to 15% depending on holding |
| Business profits | Taxable where there is a business connection in India | Taxable only if attributable to a permanent establishment |
| Capital gains | Taxable where the asset is situated in India | Allocation varies significantly between treaties |
How Did India’s International Tax Framework Develop?
India’s cross-border tax rules were built for an economy that received little foreign investment and made almost none. Everything since 1991 has been an adaptation.
The Income-tax Act, 1961 established the architecture that still governs — residence-based taxation of worldwide income, source-based taxation of non-residents, and a power to enter into agreements with other countries for relief from double taxation. India signed its first treaties in the following decades, but the practical significance was limited: exchange control under the Foreign Exchange Regulation Act, 1973 restricted cross-border transactions far more effectively than tax rules ever could.
Liberalisation changed the subject matter entirely. Foreign investment was opened up from 1991, exchange control was liberalised through the Foreign Exchange Management Act, 1999, and India’s treaty network expanded rapidly. Software services, back-office operations and outsourcing created large flows of cross-border payments for services and licences, and questions that had been theoretical — what is a royalty, when does a service create a permanent establishment — became the substance of a very large volume of litigation.
Two areas dominated. The characterisation of software payments generated years of dispute over whether payment for a licensed copy of software was a royalty for the use of a copyright or simply the price of a product, and the position was eventually settled by the Supreme Court in favour of the taxpayer in a substantial group of cases. Separately, transfer pricing was introduced in 2001, requiring transactions between associated enterprises to be at arm’s length, with documentation and audit obligations that quickly became the largest single source of tax dispute in the country.
India then took an unusually active role in the international reform agenda. It participated in the base erosion and profit shifting project and signed the multilateral instrument, which modified a large number of its bilateral treaties simultaneously — tightening the permanent establishment definition, introducing anti-abuse provisions and adding a principal purpose test that denies benefits where obtaining them was a principal purpose of an arrangement. The renegotiation of treaties with certain jurisdictions removed the capital gains exemptions that had underpinned a substantial share of inbound investment routing.
The digital economy provoked unilateral measures while the international consensus was still forming. India introduced an equalisation levy in 2016 on payments for online advertising services, and extended it in 2020 to a wider category of e-commerce supply. A significant economic presence test was also introduced, deeming a business connection where a non-resident’s transactions or user base in India exceed prescribed thresholds even without any physical presence. As the international process advanced, the extended e-commerce levy was withdrawn with effect from August 2024 and the advertising levy from April 2025.
The Income-tax Act, 2025, in force from 1 April 2026, recodified the whole framework with new numbering, revised the drafting on treaty interpretation, and required dispute resolution panels to issue reasons with their directions. The substantive allocation rules and the treaty network carried across; the citations did not.
How Should a Cross-Border Payment Be Handled — Step by Step?
Characterise the Payment Before Agreeing the Contract
Royalty, fees for technical services, business profits, interest or reimbursement of cost — the classification determines the rate, the treaty article and whether tax arises at all. Contractual language matters here, and a description drafted without regard to the tax position frequently creates a problem the commercial parties did not intend.
Establish Whether the Sum Is Chargeable to Tax in India
Withholding applies to any sum chargeable, so the chargeability question comes first. Where the payment is not chargeable — a genuine reimbursement, a purchase of goods, business profits with no permanent establishment — the analysis should be documented, because the payer will need to justify not withholding.
Determine the Treaty Position and Collect the Documentation
Identify the applicable article and rate, and obtain the tax residency certificate and the prescribed declaration before the payment. These must be in hand at the time of withholding, not obtained afterwards to support a position already taken.
Assess Permanent Establishment Exposure
A fixed place, a project site exceeding the treaty duration, a dependent agent concluding contracts, or seconded personnel working under the Indian entity’s control can each create one. Secondment arrangements are examined closely, and the documentation on who controls and bears the cost of the seconded employee usually determines the outcome.
Consider Whether a Certificate Is the Better Route
Where the correct rate is lower than the statutory one, or the receipt is not taxable at all, a lower deduction certificate gives certainty to both parties and removes the payer’s exposure to a later dispute about chargeability.
Complete the Remittance Formalities
File the required declaration, and where the sum is chargeable and above the threshold, obtain the accountant’s certificate first. The remittance certification should reflect the same characterisation and treaty article as the withholding decision — inconsistency between the two is the first thing an assessing officer notices.
Meet the Transfer Pricing Obligations
Arm’s length pricing, contemporaneous documentation and the accountant’s report apply to international transactions between associated enterprises above the prescribed threshold. International transfer pricing requirements run in parallel with the withholding analysis and should not be left until year end.
Claim Foreign Tax Credit Correctly on the Other Side
A resident taxed abroad on the same income claims credit through the prescribed statement filed by the due date, with evidence of the foreign tax paid. Reconcile the position on the portal at incometax.gov.in before filing, since credit claimed without the statement is routinely denied.
Who Needs International Tax Advice?
Indian Companies Paying Foreign Vendors
Software licences, cloud services, technical support, management fees to a parent and commission to overseas agents each raise characterisation questions. The exposure sits with the Indian payer, who must withhold correctly on a judgement about the recipient’s Indian tax position that the recipient may not cooperate in resolving.
Foreign Companies Serving Indian Customers
Permanent establishment risk is the central question, and it can arise from arrangements that feel administrative — a liaison office exceeding its permitted activities, an agent with authority to conclude contracts, or personnel spending extended periods in India. Where a presence is intended, an Indian subsidiary with a properly documented service arrangement is usually cleaner than an undefined presence.
Indian Groups Investing Abroad
Outbound investment engages the exchange control framework alongside tax — the structure of the holding, the repatriation of profits, foreign tax credit on dividends and the transfer pricing of intra-group services. Overseas direct investment compliance and the tax position need designing together rather than sequentially.
Individuals with Income in Two Countries
Expatriates working in India, Indians on assignment abroad, and individuals with foreign investments face residence questions, treaty tie-breakers and foreign asset reporting — see seafarer residency and seafarer filing for the marine version. Expatriate taxation also involves the social security position, which is governed by separate agreements and is frequently overlooked.
Why Choose N D Savla & Associates
- The characterisation is settled before the contract is signed — whether a payment is a royalty, a service fee or a purchase determines everything downstream, and it is far easier to influence in the drafting
- Documentation collected in the right sequence — residency certificates and declarations must be in hand before withholding, not obtained later to support a position already taken
- Withholding, remittance and transfer pricing kept consistent — the same transaction is described in the withholding decision, the remittance certificate and the transfer pricing documentation
- We advise on positions that will be examined — cross-border characterisation is litigated frequently and the case law moves; we record reasoning and authorities so a position taken today can be defended in four years
- Tax and exchange control handled together — a structure that is efficient for one can be impermissible under the other; our FEMA advisory and international tax work sit in the same team
- Coordinated with Section 395 applications, property sales and securities gains where relevant
Frequently Asked Questions on International Tax
How do I claim benefit under a tax treaty?
A non-resident claiming treaty benefit must furnish a tax residency certificate issued by the tax authority of the country of residence, together with the prescribed declaration in Form 10F containing details the certificate does not carry. The certificate establishes residence for treaty purposes; the declaration supplies the taxpayer identification number, address and status. Both must be held before the payment is made, because a payer who withholds at a treaty rate without them carries the exposure if the claim is later disallowed.
What is a permanent establishment and why does it matter?
A permanent establishment is a fixed place of business through which an enterprise carries on business in another country, and it is the threshold at which a treaty allows the source country to tax business profits. Without one, a foreign enterprise’s business profits generally escape Indian tax under the treaty even where Indian customers are being served. A permanent establishment can arise from a fixed place, from a construction site lasting beyond a specified period, from a dependent agent habitually concluding contracts, and in some treaties from the furnishing of services beyond a threshold number of days.
When is Form 15CB required?
A remittance to a non-resident generally requires the remitter to file Form 15CA, and where the sum is chargeable to tax and exceeds the prescribed threshold, a certificate from a Chartered Accountant in Form 15CB must be obtained first. The certificate states the nature of the remittance, the taxability position, the treaty article relied on where applicable, and the rate of withholding. Certain categories of remittance listed in the rules are exempt from the requirement altogether, so the first step is establishing whether the certificate is needed at all.
How is a payment for technical services to a foreign company taxed?
Fees for technical services and royalties paid to a non-resident are treated as arising in India where they are paid by a resident, subject to exceptions, and are taxable on a gross basis at the rate specified in the domestic law. That domestic rate was increased from ten to twenty per cent with effect from 1 April 2023. Where a treaty applies and provides a lower rate, the treaty rate prevails, subject to the recipient furnishing residency documentation. Many Indian treaties provide rates around ten per cent, which makes the treaty claim materially valuable.
Can I claim credit in India for tax paid abroad?
Yes, where a resident has paid tax in another country on income that is also taxable in India. Credit is available under the applicable treaty, or unilaterally where no treaty applies, and is limited to the lower of the foreign tax paid and the Indian tax attributable to that income. The claim requires a statement in the prescribed form filed on or before the due date, together with proof of the foreign tax paid — a certificate from the foreign authority, from the payer, or self-certified evidence in specified circumstances.
Get the Cross-Border Position Documented at the Time
Characterisation before the contract, treaty documentation before the payment, remittance certified consistently with withholding, and a foreign tax credit claim that actually clears the portal.
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