How Royalty and Technical-Service Fees From India Are Taxed for NRIs Under Section 115A

A consulting engagement closes, you raise an invoice on an Indian company for technical advice or a software licence, and the payment that lands in your overseas account is roughly a fifth lighter than the figure on the invoice. The Indian payer has withheld tax before remitting, and the rate they applied is 20% plus cess, not the 10% or so your accountant back home assumed. Worse, the deduction is on the gross invoice value. The costs you incurred to do the work, the subcontractors, the software you licensed in to deliver the project, none of it reduces the Indian tax. The full ticket is taxed at the door.

This is the part of cross-border earning that NRI consultants and licensors consistently under-budget for. It is not the dramatic one-off of a property sale. It is a recurring drag on every engagement and every royalty cheque from India, and the rate doubled in 2023 while most people were not watching. Get the paperwork right and you cut it cleanly to a treaty rate. Get it wrong, or do nothing, and you fund the Indian exchequer at more than double the treaty figure, often with no way to fully recover it at home.

The 30-second answer: Royalty and fees for technical services (FTS) earned from India by a non-resident are taxed under Section 115A at 20% on the gross amount, raised from 10% by the Finance Act 2023 with effect from April 1, 2023. With a 4% cess that is an effective 20.8%, plus surcharge above Rs 50 lakh, near 21.84% for a foreign company at the 5% band. The source rule is Section 9(1)(vi) for royalty and 9(1)(vii) for FTS, deeming the income to arise in India when the payer is Indian or the right is used in India. Most treaties cap the rate at 10% to 15%, and under Section 90(2) the treaty beats domestic law, but you need a TRC, an e-filed Form 10F and a PAN. Section 115A(5) lets you skip the return only if tax was withheld at the full 20%; claim the treaty rate and you must file.

This guide is part of our NRI tax-filing series. For how the return itself goes together, start with the NRI ITR filing guide for AY 2026-27, then come back here for the royalty and FTS detail.

What follows assumes you know you are a non-resident for the year and that an Indian company is paying you for either the use of intellectual property (a royalty) or for a service (a fee for technical services). The part that costs real money is narrower: the exact rate that applies, why it is charged on the gross, how the source rule pulls your income into the Indian net even when you never set foot in India, when a treaty cuts the rate and what you must hand over to claim it, whether you then have to file, and the edge cases that trip up software licensors and consultants in particular.

What Section 115A actually taxes, and why the rate doubled in 2023

Section 115A is the special-rate charging section for certain passive and quasi-passive income earned by non-residents from India. It overrides the normal slab structure. Where it applies, the income is taxed at a flat rate on the gross amount, and the non-resident is denied the deductions for expenses under Sections 28 to 44C and the deduction under Section 57 that a resident or a non-resident with a permanent establishment would otherwise get.

For royalty and FTS the position before the 2023 change was a flat 10% under Section 115A. The Finance Act 2023 raised that rate to 20%, applicable to income earned from April 1, 2023, that is, from assessment year 2024-25 onward. This was a genuine doubling, and it was one of the more consequential quiet changes in that Budget for anyone billing India from abroad.

So for the current and recent assessment years the headline domestic rate on a non-resident's royalty or FTS from India is 20% on the gross receipt. On that base sits a health and education cess of 4%, taking the effective rate to 20.8% where no surcharge applies. Surcharge stacks where the non-resident's total India income crosses the thresholds: for a foreign company at the 5% surcharge band the effective rate works out to about 21.84%, and individuals face the surcharge slabs that apply to them. The cess and surcharge are computed on the tax, so the all-in number sits a little above the headline 20%.

Two features of this charge matter more than the rate.

First, it is on the gross. If you invoice an Indian client Rs 50 lakh for a technical engagement and you spent Rs 30 lakh delivering it, the Indian tax is computed on the Rs 50 lakh, not on the Rs 20 lakh of profit. The economics of the deal can be far worse than the 20% headline suggests once you account for your costs, because India is taxing turnover, not margin.

Second, the tax is collected by withholding at source under Section 195. The Indian payer is obliged to deduct before remitting the money out of India, and the payer carries the risk if it under-deducts. That is why payers are cautious, and why, absent your paperwork, they default to the full domestic rate.

The source rule: how Section 9(1)(vi) and 9(1)(vii) pull your income into India

Before any rate applies, the income has to be taxable in India in the first place. For a non-resident, India taxes income that is received in India or that accrues or arises in India, and the deeming rules in Section 9 decide when royalty and FTS are treated as arising in India even though the recipient is sitting abroad.

Section 9(1)(vi) governs royalty. In broad terms, royalty is deemed to arise in India when it is payable by the Indian government, by a resident (unless the right or property is used for a business or source of income outside India), or by a non-resident where the right or property is used for a business carried on in India. For most NRI licensors the relevant limb is the simplest one: your payer is an Indian resident company licensing your IP or software for use in India, so the royalty is deemed to arise in India and is taxable here.

Section 9(1)(vii) governs fees for technical services and works the same way. FTS is deemed to arise in India where it is payable by the government, by a resident (with the same carve-out for services used in a business or source outside India), or by a non-resident where the fee relates to a business in India. So if an Indian company pays you for technical, consultancy or managerial services, the fee is deemed to arise in India, and India can tax it, regardless of where you performed the work. The Finance Act 2010 settled the old "rendered in India" debate: the income is taxable in India by virtue of the deeming rule even if no part of the service was performed on Indian soil.

This is the point that surprises consultants most. You can do every hour of the work from London, Dubai, Toronto or New York, never visit India during the engagement, and the fee is still Indian-source income taxed under Section 115A, because the deeming rule keys off the payer and the use, not your physical location.

The definitions: what counts as royalty, what counts as FTS

The label on your invoice does not decide the treatment. The character of what you supplied does.

Royalty under the Explanation to Section 9(1)(vi) is, broadly, consideration for the transfer of rights in, or the use of, intellectual property: patents, inventions, models, designs, trademarks, copyrights, secret formulas or processes, and the imparting of information concerning industrial, commercial or scientific experience (know-how). It also covers consideration for the use of, or right to use, industrial, commercial or scientific equipment, and, after the retrospective amendments in 2012, a wide reading of software and the use of computer software as royalty under domestic law. So a licence fee for your software, a payment to use your patent, or a recurring fee tied to your trademark is royalty.

Fees for technical services under the Explanation to Section 9(1)(vii) is consideration for rendering managerial, technical or consultancy services, including the provision of technical or other personnel. It does not include consideration that would be salary in the hands of the recipient, and it does not include payment for a construction, assembly or mining project the recipient undertakes. So your consultancy retainer, a technical advisory engagement, a managerial services contract, these are FTS.

Where it gets slippery is the line between the two and the line between FTS and ordinary business profits. A pure software sale dressed as a licence, a service that is really embedded in a sale of goods, a payment that is partly for equipment use and partly for operating know-how: these allocations change the rate and sometimes the section. The honest framing is that characterisation is the first battleground, and the payer's TDS decision often depends on how they classify the payment, which is why your engagement letter and invoice wording matter.

How the DTAA usually beats domestic law

Here is the relief. India's tax treaties almost always set a lower ceiling rate on royalty and FTS than the 20% domestic rate, and under Section 90(2) a non-resident can choose whichever of the treaty and the domestic law is more beneficial. Because the treaty rate is lower, the treaty wins.

Most of India's treaties cap the source-country rate on royalty and FTS at 10% to 15%. Some specifics worth knowing:

• The India-UK treaty (Article 13) limits the source-country rate on royalty and FTS to 10% or 15% depending on the category, with a lower rate for some equipment royalties.
• The India-US treaty (Article 12) caps royalty and "fees for included services" at 10% or 15%, again by category.
• Several treaties with Gulf and Asian jurisdictions set rates at the lower end, around 10%.

Two things flow from the treaty applying. First, the rate drops from 20.8% to the treaty figure, and second, no surcharge or cess is added on top of a treaty rate. The treaty rate is the all-in rate. That is a meaningful gap: 10% all-in under a treaty versus 20.8% all-in under domestic law is a halving of the Indian tax on the same gross fee.

To make the Indian payer withhold at the treaty rate rather than the domestic 20%, you have to put the treaty beyond doubt for them, because they carry the deduction risk. In practice that means furnishing, before payment:

• A valid Tax Residency Certificate (TRC) issued by the tax authority of your country of residence for the relevant period. This is the cornerstone document and is mandatory under Section 90(4) to claim treaty benefit.
• An electronically filed Form 10F, generated on the Indian income tax e-filing portal. Form 10F supplies the treaty-related details the TRC may not contain. Since the portal moved Form 10F online, you generally need a PAN-linked login to file it, though there has been a non-resident workaround for those without a PAN.
• A PAN. Without a PAN, Section 206AA can force withholding at 20% even where a treaty would give a lower rate, although a relaxation exists where the non-resident furnishes the prescribed details (name, address, country, TRC, and so on). The clean route is to hold a PAN.
• Often a no-permanent-establishment declaration and a beneficial-ownership confirmation, on the payer's format, plus a chartered accountant's certificate in Form 15CB supporting the rate, which the payer needs for the Form 15CA remittance filing.

Hand over a clean set and the payer withholds at the treaty rate. Hand over nothing and they withhold at 20.8%, leaving you to recover the excess.

Worked example: domestic 20.8% versus a 10% treaty rate

Take a concrete case. You are a non-resident technology consultant, resident in the UK, and you license your software platform to an Indian company for an annual fee of Rs 40,00,000, with a separate Rs 10,00,000 technical support and implementation fee for the year. Both are Indian-source: the royalty under Section 9(1)(vi) and the support fee as FTS under Section 9(1)(vii), because an Indian resident is paying for use in India.

Your total gross India receipt is Rs 50,00,000.

Scenario A, you furnish nothing. The payer must protect itself, so it withholds under Section 195 at the Section 115A domestic rate.

• Gross royalty and FTS: Rs 50,00,000
• Tax at 20%: Rs 10,00,000
• Health and education cess at 4% on the tax: Rs 40,000
• Total Indian tax withheld: Rs 10,40,000, an effective 20.8%
• Net remitted to you: Rs 39,60,000

Scenario B, you furnish a valid TRC, an e-filed Form 10F and a PAN, and claim the 10% UK treaty rate for the relevant category.

• Gross royalty and FTS: Rs 50,00,000
• Tax at the treaty rate of 10% (no surcharge, no cess on a treaty rate): Rs 5,00,000
• Total Indian tax withheld: Rs 5,00,000, a flat 10%
• Net remitted to you: Rs 45,00,000

The paperwork is worth Rs 5,40,000 on this single year's engagement, the difference between Rs 10,40,000 and Rs 5,00,000. That is not a timing difference you recover later. As the next section explains, the excess in Scenario A is recoverable from India only by filing a return, and the portion above your home-country credit limit may not be creditable abroad at all.

Note the gross-basis sting in both scenarios. Suppose your costs of delivering this Rs 50 lakh of work were Rs 30 lakh, so your real profit was Rs 20 lakh. In Scenario B you paid Rs 5,00,000 of Indian tax on Rs 20 lakh of actual profit, an effective 25% of your margin. In Scenario A you paid Rs 10,40,000 on that same Rs 20 lakh of profit, 52% of your margin. The gross basis is why under-papering an India engagement can quietly turn a profitable contract into a marginal one.

Whether you have to file a return: the Section 115A(5) exception

Many non-residents assume that if tax was withheld at source, they are done. Sometimes that is true, and the rule that makes it true is Section 115A(5).

Section 115A(5) says a non-resident is not required to furnish a return of income under Section 139(1) if two conditions are both met:

1. The non-resident's total India income consists only of income covered by Section 115A, that is, dividend, interest, royalty or FTS of the specified kind, and
2. TDS has been deducted on that income at a rate not lower than the rate specified in Section 115A.

Read condition two carefully, because it is where the trap sits. The exemption from filing holds only when tax was withheld at the full Section 115A domestic rate (20% plus cess). The instant you claim a lower treaty rate of 10% or 15%, the withholding is below the Section 115A rate, condition two fails, and the filing exemption evaporates. You are then obliged to file an Indian return (typically ITR-2, or ITR-3 if there is any business angle) by the due date.

So the two choices are genuinely linked, and you should decide deliberately:

• Pay the full 20.8% and skip the return. Simple, but you over-pay versus the treaty, and you cannot then reclaim the difference because you have not filed.
• Claim the 10-15% treaty rate and file a return. You pay the lower tax, but you accept the compliance of an Indian return and, usually, the cost of an Indian PAN, an e-filed Form 10F and a TRC.

For anyone with material royalty or FTS income, the treaty-plus-return route is almost always the better economics, because the rate saving dwarfs the filing cost. The Section 115A(5) no-filing route is genuinely useful only for small, occasional receipts where the treaty saving would not justify the compliance, or where the treaty rate is not actually lower than the domestic rate.

The home-country credit

The Indian tax you pay is not the end of the story, because the same royalty or FTS is usually taxable again in your country of residence. Your home country relieves the double tax by giving you a foreign tax credit for the Indian tax paid, but the credit is capped at the treaty rate.

That cap is the whole argument for claiming the treaty rate up front. If you let India withhold at 20.8% when the treaty rate was 10%, your home country will generally credit only the 10% treaty amount, because that is the maximum India was entitled to charge under the treaty. The extra 10.8% India took is then not creditable abroad. It is not lost in the sense of vanishing, but you can recover it only from India, by filing an Indian return and claiming a refund of the over-withheld amount. So over-withholding leaves you chasing two tax systems instead of one.

Mechanically, a US resident claims the credit on Form 1116, a UK resident as Foreign Tax Credit Relief on the SA106 foreign pages, a Canadian resident on Form T2209, and a UAE resident has no personal income tax so the question of a home credit does not arise, which incidentally makes the UAE treaty rate especially clean. India's side of the credit machinery, if you ever need to claim credit in India for foreign tax, runs through Form 67, but for inbound India royalty and FTS the credit you care about is the one in your country of residence.

The timing can also bite: India taxes on receipt or accrual, your home country on its own basis, and the two years may not line up, so the foreign tax credit can land in a different tax year from the income. That mismatch is a known headache and worth flagging to your home-country adviser.

Edge cases

The general rule is clean. The exceptions are where the money and the disputes are.

The make-available clause. Several of India's treaties, notably the India-US, India-UK, India-Canada and India-Singapore treaties, narrow the definition of fees for technical or "included" services with a make-available requirement. Under these treaties, a service is taxable as FTS only if it makes available technical knowledge, experience, skill, know-how or processes to the recipient, that is, the recipient is enabled to apply the technology on its own in future without recurring to you. Ordinary consultancy that simply delivers an output, advice, a report, a deliverable, without transferring the underlying technical capability, may fall outside the treaty FTS article entirely. If it does, and you have no permanent establishment in India, the income may be treaty business profits taxable only in your home country, and India's rate drops to nil. This is a genuinely valuable position, but it is fact-specific and contested. The honest read is that the make-available argument can take your Indian tax to zero on a pure consultancy, but you must be able to show that no technical knowledge was transferred, and the payer will usually want a clear opinion before withholding at nil.

Software royalty. The characterisation of payments for software has been one of the most litigated questions in Indian international tax. Domestic law, after the 2012 amendments, reads software payments broadly as royalty. But the Supreme Court in Engineering Analysis (2021) held that, under the relevant treaties, payments by Indian end-users and distributors for the use of shelf or shrink-wrapped software are not royalty but business profits, because what is transferred is a copyrighted article, not the copyright itself. The practical effect is that for many software payments the treaty position can be that there is no royalty at all, and so no Section 115A charge, where the treaty defines royalty narrowly and the copyright analysis applies. This is squarely a place where the treaty position and the domestic position diverge, the law is genuinely unsettled at the margins, and you should get a specific opinion rather than assume either the 20% or the nil position.

The return-filing exception, restated as a trap. It bears repeating in the edge-case column because it catches people. If you claim a treaty rate below 20%, you lose the Section 115A(5) no-filing exemption and must file. Do not assume that withholding ends your obligations the moment you have claimed a treaty rate, because that combination is precisely the one that triggers a filing requirement.

Permanent establishment risk. Section 115A and the treaty royalty and FTS articles assume the income is not effectively connected with a permanent establishment (PE) in India. If you have a PE in India, a fixed place of business, a dependent agent, or in some treaties a service PE created by personnel spending enough days in India, the royalty or FTS attributable to that PE is taken out of Section 115A and the treaty rate and taxed as business profits on a net basis at the applicable rates, which for a foreign company is materially higher. So spending too many days delivering a service in India, or running an office there, can convert a clean 10% treaty position into a full business-profits assessment. If your engagement involves substantial on-the-ground presence in India, the PE question is the first thing to settle, before the rate.

The closing read

The structure to hold in your head is simple. India deems your royalty or FTS to arise here under Section 9(1)(vi) and 9(1)(vii) the moment an Indian payer pays you for IP or services used in India, wherever you did the work. Domestic law then taxes that gross receipt at 20% plus cess under Section 115A, an effective 20.8%, after the Finance Act 2023 doubled the rate from 10% with effect from April 1, 2023. Almost every treaty caps that at 10% to 15%, and under Section 90(2) the treaty wins, but only if you arm the payer with a TRC, an e-filed Form 10F and a PAN before payment.

The closing read is this: for any recurring or material royalty or FTS, do the paperwork and claim the treaty rate, accept that you then have to file an Indian return because Section 115A(5) no longer exempts you, and claim your home-country credit on the treaty amount. Doing nothing costs you roughly double the tax and strands the excess in a system you then have to file into anyway to recover it. The two genuinely high-value positions to investigate with a specialist are the make-available clause, which can take a pure consultancy fee to nil, and the software-royalty characterisation after Engineering Analysis, which can do the same for shrink-wrapped software. Both are unsettled enough that you want an opinion, not an assumption. And before any of it, settle the PE question, because a permanent establishment in India tears up the whole special-rate structure and puts you on net business-profits tax instead.

Related guides

• NRI ITR filing guide for AY 2026-27
• DTAA mechanics: TRC and Form 10F
• How NRIs get a Tax Residency Certificate (TRC)
• DTAA relief for NRIs
• PAN for NRIs
• Presumptive taxation under Section 44ADA for NRIs
• Freelancing and consulting as an NRI
• Remote work for an Indian employer from abroad
• Working remotely for a foreign startup from India
• Foreign tax credit and Form 67
• Lower TDS certificate, Form 13
• India-UK DTAA deep dive
• India-US DTAA deep dive
• India-UAE DTAA deep dive
• NRI dividend tax in India

Disclaimer

This guide is general information, not tax or legal advice, and it is written for non-residents earning royalty or fees for technical services from India. Tax rates, treaty positions and filing rules change, and the make-available, software-royalty and permanent-establishment questions discussed here are fact-specific and, in places, genuinely unsettled in Indian law. The figures used are illustrative. Confirm your own position, the correct treaty article and rate for your country of residence, and your home-country credit treatment with a qualified chartered accountant in India and a tax adviser in your country of residence before acting.