Quick answer: Under the India-Canada DTAA, Fees for Included Services (FIS) that meet the “make available” test are capped at 15% under Article 12(2), versus India's domestic FTS rate of 20% (about 20.8% to 21.84% with surcharge and cess). Services that do not make available technical knowledge fall outside the FIS definition and are taxed as business profits under Article 7 -- 0% if the Canadian provider has no permanent establishment in India, or the 35% corporate rate if it does.
Key takeaways:
- FIS treaty rate is capped at 15% under Article 12(2), versus a domestic FTS rate of 20%.
- Services failing the make-available test are business profits, taxed at 0% without a PE.
- FIS connected to a PE in India is instead taxed at the 35% corporate rate.
- The MLI's Principal Purpose Test, effective for withholding taxes since 1 April 2020, can deny FIS treaty benefits.
- Domestic FTS rate doubled from 10% to 20% effective 1 April 2023.
Fees for Technical Services Tax Rate Between India and Canada
The India-Canada Double Taxation Avoidance Agreement (DTAA) addresses the taxation of technical services through the concept of "Fees for Included Services" (FIS) under Article 12. Unlike some other Indian DTAAs that use the broader term "Fees for Technical Services" (FTS), the India-Canada treaty uses a narrower definition that only covers services meeting the "make available" test.
Under Article 12(2) of the India-Canada DTAA, fees for included services arising in one Contracting State and paid to a resident of the other State are subject to a maximum withholding tax rate of 15% of the gross amount, provided the recipient is the beneficial owner. This represents a reduction from India's domestic withholding rate of 20% (plus applicable surcharge and health and education cess) under Section 195 read with Section 115A of the Income Tax Act, 1961.
The India-Canada DTAA was signed on 11 January 1996 and entered into force on 6 May 1997. Both countries have ratified the Multilateral Instrument (MLI), with MLI provisions effective in India for withholding taxes from 1 April 2020 (and for other taxes from 1 April 2021). The synthesised text published by the CBDT reflects the combined effect of the original treaty and MLI modifications.
Treaty Rate vs Domestic Rate: Detailed Comparison
Understanding the FTS taxation framework under the India-Canada DTAA requires analysing the interplay between the treaty's FIS provisions and India's domestic law definition of FTS:
| Scenario | Applicable Rate | Governing Provision | Make Available Test |
|---|---|---|---|
| Services making available technical knowledge | 15% | Article 12(2) - FIS | Met - recipient can apply knowledge independently |
| Services NOT making knowledge available (no PE) | No tax in India | Article 7 - Business Profits | Not met - falls outside FIS definition |
| Services NOT making knowledge available (with PE) | Corporate rate (35%) | Article 7 + Domestic Law | Not met but PE exists in India |
| Domestic law FTS (without treaty protection) | 20% + surcharge + cess | Section 115A / Section 9(1)(vii) | N/A - domestic law applies broader definition |
The effective domestic rate on FTS, inclusive of surcharge and cess, can reach approximately 20.8% to 21.84% depending on the payee's income. This rate was increased from 10% to 20% effective 1 April 2023 by the Finance Act, 2023, making the 15% treaty rate for FIS significantly more valuable than before.
The critical advantage of the India-Canada DTAA is that technical services that do not meet the "make available" test fall outside the FIS definition entirely. Such payments are classified as business profits under Article 7, which means they are taxable in India only if the Canadian company has a permanent establishment in India.
Who Qualifies for the Reduced Rate
The eligibility for the 15% FIS rate or Article 7 business profits protection depends on multiple factors:
Beneficial Ownership Requirement
The recipient must be the beneficial owner of the FIS payments. Post-MLI, this requirement has been strengthened through the Principal Purpose Test (PPT).
Tax Residency Requirement
The recipient must be a tax resident of Canada as defined under Article 4. A valid Tax Residency Certificate (TRC) from the Canada Revenue Agency (CRA) is mandatory.
The Make Available Test
For the 15% FIS rate to apply, the technical or consultancy services must make available technical knowledge, experience, skill, know-how, or processes to the person purchasing the service. This means the recipient must be enabled to apply the technology or knowledge independently after the service engagement ends, without further recourse to the service provider.
No Permanent Establishment Connection
The reduced FIS rate does not apply if the service provider has a PE in India and the services are effectively connected with that PE. In such cases, the income is taxed as business profits under Article 7 at the applicable corporate rate.
The "Make Available" Test: Detailed Analysis
The "make available" test is the most critical concept in determining FTS taxation under the India-Canada DTAA. Understanding its nuances is essential for correct characterisation of technical service payments:
What "Make Available" Means
Under Article 12(4) of the India-Canada DTAA, fees for included services means payments for technical or consultancy services if such services:
- Make available technical knowledge, experience, skill, know-how, or processes
- Consist of the development and transfer of a technical plan or technical design
The services must enable the recipient to independently apply the technology without needing to engage the service provider again for the same purpose.
What Does NOT Meet the Make Available Test
The treaty protocol clarifies that:
- The fact that the provision of a service may require technical input by the provider does not per se mean that technical knowledge is made available
- The use of a product that embodies technology shall not per se be considered to make the technology available
- Standard auditing, accounting, or legal services generally do not make available technical knowledge
- Market research and management consulting that provides recommendations without transferring methodology do not meet the test
Common Examples
Meets the make available test:
- Training Indian engineers on a proprietary manufacturing process
- Providing design blueprints that the Indian company can use independently
- Transferring a proprietary software development methodology
- Teaching quality control techniques that can be replicated
Does NOT meet the make available test:
- Providing a legal opinion or tax advisory report
- Conducting an engineering feasibility study
- Performing quality testing and providing results
- Providing IT support and maintenance services
- Running a market research survey and presenting findings
Documentation Required
Canadian companies claiming the 15% FIS rate or business profits protection must maintain comprehensive documentation:
Tax Residency Certificate (TRC)
A valid TRC from the Canada Revenue Agency (CRA) confirming tax residency for the relevant financial year.
Form 10F
If the TRC does not contain all prescribed particulars, the recipient must file Form 10F electronically on the Indian Income Tax portal.
Self-Declaration
A declaration confirming beneficial ownership, absence of PE in India, and that the arrangement is not primarily motivated by tax avoidance.
Service Agreement and Deliverables
The service agreement should clearly specify whether the services involve making available technical knowledge. The scope of work, deliverables, and knowledge transfer clauses (or absence thereof) are key evidence for determining whether the make available test is met.
No PE Declaration
If relying on Article 7 (business profits) protection, evidence that the Canadian company does not have a PE in India is critical.
Withholding Procedure for Indian Payers
Indian companies paying technical service fees to Canadian residents must follow a careful characterisation and compliance process:
Step 1: Apply the Make Available Test
Analyse the service agreement and nature of services to determine whether the services make available technical knowledge to the Indian recipient. If the services meet the test, the 15% FIS rate under Article 12 applies. If not, the services may qualify as business profits under Article 7.
Step 2: Determine PE Status
If the payment qualifies as business profits, determine whether the Canadian company has a PE in India. If no PE exists, no Indian withholding tax applies.
Step 3: Verify Documentation
Verify the TRC, Form 10F, and self-declaration from the Canadian company before applying the treaty rate.
Step 4: Deduct TDS at Applicable Rate
If the payment qualifies as FIS, deduct TDS at 15%. If it qualifies as business profits with no PE, withholding may not be required (though the payer should consider obtaining a Section 195(2) or Section 197 determination for safety). The TDS must be deposited within 7 days of the following month.
Step 5: File Form 15CA/15CB
File Form 15CA electronically for the remittance. If the amount exceeds INR 5 lakh, obtain a Form 15CB certificate from a Chartered Accountant.
Common Disputes and Judicial Precedents
The "make available" concept has generated significant litigation in Indian courts:
Standard Services Not Meeting Make Available Test
The ITAT has consistently held that standard professional services such as legal, accounting, auditing, and management consulting do not meet the make available test. In multiple rulings, the ITAT found that providing a service that requires technical expertise is different from making that expertise available to the client. The Delhi ITAT has ruled that services of tax advisory, compliance assistance, and regulatory filing do not make available technical knowledge within the meaning of Article 12.
Training and Capacity Building
Where the service engagement includes a training component that enables the recipient to perform the work independently, the ITAT has held that the make available test is met. The key question is whether the recipient acquires a lasting ability to perform the task without the service provider's assistance.
Mixed Service Agreements
When a single agreement covers both services that make available knowledge and services that do not, the ITAT has required appropriate bifurcation. The FIS rate of 15% applies only to the component that meets the make available test, while the remaining component is treated as business profits.
IT Services and Software Development
The ITAT has examined whether IT outsourcing and custom software development services meet the make available test. Generally, the ITAT has held that providing software development services -- even if highly technical -- does not make available technology unless the source code, methodology, or development framework is transferred to the client.
Practical Examples and Calculations
Example 1: Engineering Design Transfer
A Canadian engineering firm provides proprietary bridge design templates and trains Indian engineers on how to use them for INR 30,00,000. Since the Indian company acquires the ability to apply the design methodology independently, the make available test is met. The treaty rate of 15% applies: INR 4,50,000 in tax, compared to INR 6,24,000 (20.8%) under domestic rates. Saving: INR 1,74,000.
Example 2: Management Consulting
A Canadian consulting firm provides a market entry strategy report to an Indian company for INR 20,00,000. The consultants present recommendations but do not transfer any methodology or skill. The make available test is not met. If the Canadian firm has no PE in India, the payment qualifies as a business profit under Article 7 -- no Indian tax applies. Saving compared to domestic rate: INR 4,16,000.
Example 3: IT Support Services
A Canadian IT company provides ongoing helpdesk and infrastructure support to an Indian firm for INR 50,00,000 annually. The services involve using technical expertise but do not transfer knowledge to the Indian firm. The make available test is not met. Without a PE in India, this is a business profit -- no Indian tax. If the Indian payer conservatively withholds at 20.8%, the Canadian company can claim a refund of INR 10,40,000.
Example 4: Technology Training Programme
A Canadian firm conducts a specialised training programme for INR 15,00,000, teaching Indian employees a proprietary quality management system. The trainees can subsequently implement the system independently. The make available test is met. Tax at 15%: INR 2,25,000. Saving vs domestic rate: INR 87,000.
Frequently Asked Questions
What is the FTS tax rate under the India-Canada DTAA?
The India-Canada DTAA caps fees for included services (FIS) at 15% of the gross amount under Article 12(2), provided the recipient is the beneficial owner. This applies only to services that meet the "make available" test. Services that do not meet this test are treated as business profits under Article 7, taxable in India only if the Canadian company has a PE.
What is the "make available" test under the India-Canada DTAA?
The make available test requires that technical or consultancy services make available technical knowledge, experience, skill, know-how, or processes to the recipient, enabling them to apply the technology independently. The mere use of technical skill by the service provider does not meet this test.
How is the India-Canada DTAA different from other DTAAs regarding FTS?
The India-Canada DTAA uses the term "fees for included services" (FIS) with a narrow "make available" requirement, unlike DTAAs with countries such as Germany, Japan, or Italy that use the broader term "fees for technical services" (FTS) without a make available test (the India-UK and India-Singapore treaties, by contrast, also contain make-available language). This means many technical service payments that would be FTS under other treaties fall outside FIS under the India-Canada treaty.
Do standard consulting services qualify as FIS under the India-Canada DTAA?
Generally no. Standard consulting services such as legal advice, tax advisory, management consulting, market research, and audit services typically do not meet the make available test because they provide recommendations or results without transferring the underlying methodology or skill to the client.
What happens if an Indian payer incorrectly withholds at the domestic rate?
If the Indian payer withholds at the domestic rate of 20% plus surcharge and cess instead of the applicable treaty rate (15% for FIS, or 0% for business profits), the Canadian company can file an Indian income tax return to claim a refund. This process typically takes 6-12 months.
Can a Canadian company apply for a nil or lower withholding certificate?
Yes. Under Section 197 of the Income Tax Act, a Canadian company can apply to the Assessing Officer for a certificate authorising nil or lower withholding. Alternatively, under Section 195(2), the Indian payer can apply for a determination of the appropriate withholding rate. These applications are particularly useful when the service does not meet the make available test.
How does the MLI affect FIS taxation under the India-Canada DTAA?
The MLI introduces a Principal Purpose Test (PPT) to the treaty. Under the PPT, treaty benefits (including the 15% FIS rate or business profits protection) can be denied if one of the principal purposes of an arrangement was to obtain the treaty benefit. For the India-Canada treaty, the MLI provisions have been effective in India for withholding taxes since 1 April 2020 (and for other taxes since 1 April 2021).
This article is for general information only and is not legal, tax, or investment advice. Confirm current rules with the relevant authority or a qualified professional — or ask our team. See our full disclaimer.
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Tax Advisory for Foreign Investors in IndiaCanada — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Substantial Holding (10%+ voting power) Beneficial owner is a company holding at least 10% of the voting power in the paying company | 15% | 20% | Article 10(2)(a) |
| General All other dividend recipients; domestic rate of 20% is more beneficial | 25% | 20% | Article 10(2)(b) |
Canada — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Standard rate for interest income paid to beneficial owner | 15% | 20% | Article 11(2) |
Canada — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Copyright, Patent, Trademark, Design Royalties for use of or right to use copyright, patent, trademark, design, secret formula or process | 15% | 20% | Article 12(2) |
| Industrial, Commercial, Scientific Equipment Royalties for use of or right to use industrial, commercial, or scientific equipment | 10% | 20% | Article 12(2) |
Canada — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Fees for Included Services (FIS) - General Fees for technical or consultancy services that make available technical knowledge, experience, skill, know-how, or processes to the recipient | 15% | 20% | Article 12(2) |
| Services NOT Making Available Knowledge Technical services that do not make available technical knowledge; taxed as business profits only if PE exists in India | Business Profits (Article 7) | 20% | Article 7 |