Form 41 filing by US Companies from Service Fees
US companies licensing software or IP to India may end up with 20% WHT liability, if they
do not file Form 41. India’s new Income Tax Act 2025 replaced Form 10F with Form 41
under Section 159(8), effective 1 April 2026. Filing Form 41 alongside your US Tax
Residency Certificate allows your Indian payer to apply the India-US DTAA rate of 15% on
royalties and software fees — instead of the full domestic rate of 20 % and above. Form 41 is
required to be filed once a year. In certain cases, to file Form 41, no Indian PAN needed.
Form 41 filing by US Consultants
US consultants and independent professionals receiving fees from Indian companies are often
over-taxed at source because they either do not file Form 41, or file it after taxes have been
deducted. Under India’s Income Tax Act 2025 (effective 1 April 2026), Form 41 under
Section 159(8) replaces Form 10F. Filing Form 41 + your US TRC allows your Indian client
to apply the India-US DTAA rate on Fee for Technical Services — saving you 5 -20% on
every payment. One Form 41 filing covers all Indian clients for the full tax year. No PAN is
required for filing Form 41 in certain cases.
Key Points of Article 10 of the India US Treaty
Article 10 – Dividend
- Dual Taxation Rights – Dividends paid by a company in one country to a resident of the other can be taxed in both countries
- Tax Rate Caps on Dividends:
- 15% of the gross dividend amount if the beneficial owner is a company holding at least 10% voting stock in the paying company
- 25% of the gross dividend amount in all other cases
- Special US Entity Rules:
- Regulated Investment Companies (RIC) – The 25% rate always applies; the lower 15% rate is not available
- Real Estate Investment Trusts (REIT) – The 15% rate does not apply at all; the 25% rate applies only if the beneficial owner is an individual holding less than 10% interest in the REIT
- Definition of “Dividends” – Includes income from shares, profit-participating rights, other corporate rights treated like shares under domestic law, and income from debt arrangements carrying profit participation rights
- Permanent Establishment Exception – If dividends are attributable to a permanent establishment or fixed base of the recipient in the paying company’s country, business profit rules (Article 7) or independent personal services rules (Article 15) apply instead
- No Tax on Undistributed Profits – A country cannot tax a foreign company’s undistributed profits, even if those profits originated within its borders
Key Points of Article 12 of the India US Treaty
Article 12 – Royalties & Fees for Included Services
- Dual Taxation Rights – Royalties and fees for included services can be taxed in both the source country and the recipient’s country of residence
- Tax Rate Caps — Two-Tier Structure:
- For copyright royalties, patents, trademarks, know-how, and most technical service fees:
- First 5 taxable years: 15% if payer is the Government or public sector company; 20% in all other cases
- From the 6th year onwards: Capped at a flat 15%
- For equipment rental royalties and services ancillary to such rentals: Flat 10% at all times
- For copyright royalties, patents, trademarks, know-how, and most technical service fees:
- Definition of “Royalties” – Includes payments for use of:
- Copyrights, patents, trademarks, designs, secret formulas, or scientific/commercial know-how
- Cinematograph films and radio/TV broadcast content
- Industrial, commercial, or scientific equipment rentals
- Definition of “Fees for Included Services” – Covers technical or consultancy payments that either:
- Support the use or enjoyment of licensed rights or information, or
- Transfer technical knowledge, skills, processes, or designs to the recipient
- Exclusions from Included Services – Payments for the following are not covered:
- Services tied to property sales (other than IP sales)
- Services ancillary to ship/aircraft rentals in international traffic
- Teaching by educational institutions
- Personal use services
- Employee salaries or professional services (Article 15)
- Permanent Establishment Exception – If royalties or fees are attributable to a permanent establishment or fixed base of the recipient in the source country, Article 7 or Article 15 rules apply instead
- Extended Source Rule – If royalties/fees cannot be traced to either Contracting State under normal rules, they are deemed to arise in the country where the right, property, or service is actually used or performed
- Anti-Avoidance Clause – If payments are inflated due to a special relationship, treaty benefits apply only to the fair market value portion; the excess remains taxable under domestic law in each country.
No Indian PAN? US Companies Can Still File Form 41
Foreign companies that do not have an Indian PAN can still file Form 41 and claim DTAA
benefits in certain cases. Under India’s Income Tax Act 2025, non-residents companies can register on the income tax portal without a PAN, and file Form 41 using their US Tax Identification Number. For this purpose, OTP-based verification replaces the need to obtain digital signature. Your Indian payer can then apply the India-US DTAA rate immediately and reduce overpayment of TDS in India.
