FTS Tax Rate Between India and Indonesia Under DTAA

Quick answer: Article 12(2) of the India-Indonesia DTAA caps fees for technical services (FTS) at 10% of the gross amount, versus India's domestic rate of 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). There is no 'make available' requirement, so managerial, technical and consultancy fees — including secondment of personnel — are all taxed as FTS regardless of whether technical knowledge transfers to the Indian recipient. The treaty is a Covered Tax Agreement under the MLI, so the Principal Purpose Test can deny the reduced rate to arrangements set up mainly to access it.

Key takeaways:

• FTS rate capped at 10% under Article 12(2), versus 20% domestically
• No 'make available' clause — broader FTS scope than USA, UK or Singapore treaties
• Excludes payments already covered under Article 14 (independent) or Article 15 (dependent personal services)
• Article 12(5)(b) sources the fee to the state where the services are performed, when the payer rule does not allocate it
• MLI Principal Purpose Test applies because Indonesia notified this treaty as a Covered Tax Agreement

Fees for Technical Services (FTS) Tax Rate Between India and Indonesia

The India-Indonesia DTAA, signed 27 July 2012 and in force from 5 February 2016, taxes fees for technical services (FTS) under the same Article 12 that governs royalties. The maximum withholding tax on FTS paid to an Indonesian beneficial owner is 10% of the gross amount, compared to the domestic rate of 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), doubled from 10% by the Finance Act 2023.

Indonesian engineering, mining-services and consultancy firms provide technical expertise to Indian infrastructure and manufacturing projects, while Indian IT and professional-services firms deliver technical work into Indonesia. Because Article 12(3)(b) has no 'make available' requirement, the definition of FTS under this treaty is broader than under India's treaties with the USA, UK or Singapore — any payment for managerial, technical or consultancy services can qualify, whether or not it leaves the Indian recipient able to apply the knowledge independently afterwards. See our India-Indonesia DTAA complete guide and the related royalty tax rate page for the rest of Article 12.

Beacon Filing's tax advisory and FEMA and RBI compliance teams support Indian companies contracting technical services from Indonesian providers, including secondment and shared-services arrangements.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025, FTS paid to a non-resident is taxed at 20% (plus surcharge and cess), doubled from 10% with effect from 1 April 2023.

DTAA Rate (With Treaty)

Article 12(2) restricts India's taxing right on FTS to 10% of the gross amount, provided the recipient is the beneficial owner — regardless of whether the service is managerial, technical or consultancy in nature.

Effective Tax Savings

An Indonesian mining-engineering consultancy invoicing an Indian client INR 60 lakh for a feasibility study saves INR 6 lakh under the treaty (INR 6 lakh TDS at 10% instead of INR 12 lakh at 20%).

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The reduced rate is available only where the Indonesian service provider is the genuine beneficial owner of the fee — actually rendering the services (directly or through its own personnel) rather than passing the engagement through to an unrelated subcontractor for a margin.

Tax Residency

The provider must be a tax resident of Indonesia and hold a Certificate of Domicile from the DJP under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Anti-Abuse: MLI Principal Purpose Test

The India-Indonesia DTAA is a Covered Tax Agreement under the Multilateral Instrument, with the Principal Purpose Test applying to FTS payments from 1 April 2021 (India-source) and 1 January 2021 (Indonesia-source). An Indonesian intermediary interposed in a service chain mainly to access the 10% rate, without performing any substantive part of the work, risks denial of treaty benefit under the PPT, independent of India's domestic GAAR.

No PE Attribution

Under Article 12(4), FTS effectively connected with a permanent establishment the Indonesian provider maintains in India is taxed as business profits under Article 7 instead of at the 10% FTS rate.

FTS-Specific Treaty Provisions Under Article 12

Definition of FTS (Article 12(3)(b))

The treaty defines FTS as payments of any kind, other than those covered by Articles 14 and 15, as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel. This wording explicitly covers secondment of staff, and — because there is no "make available" qualifier — extends to consultancy and managerial fees that do not transfer any lasting technical capability to the Indian recipient.

Exclusion for Personal Services (Articles 14 and 15)

Payments already taxed under Article 14 (independent personal services, typically professionals acting on their own account) or Article 15 (dependent personal services, i.e. employment income) fall outside the FTS definition entirely, avoiding double characterisation.

Article 12(2): Source State Cap

The source state's tax on FTS "shall not exceed 10% (ten per cent) of the gross amount," the same ceiling that applies to royalties under the combined article.

Article 12(5): Source Rule

FTS is generally deemed to arise where the payer is resident. A further rule in Article 12(5)(b) extends the source location to where the services were actually performed, where the payer-residence test does not allocate the fee to either Contracting State — relevant where a third-country entity in a group structure is technically the payer.

Article 12(6): Arm's Length Rule

Where a special relationship inflates the fee above an arm's-length amount, only the arm's-length portion benefits from the 10% cap.

Check the Current Treaty, Not the 1987 One

Under Article 30(4), the earlier India-Indonesia agreement signed at Jakarta on 7 August 1987 ceased to have effect once the 2012 provisions became applicable — in India, from fiscal years beginning on or after 1 April 2017. Commentary written against the superseded agreement still circulates and can quote rates and article numbers that no longer apply. The operative position is Article 12(3)(b) of the 2012 treaty, which brings fees for technical services within the combined royalties and FTS article at the same 10% cap as royalties.

Documentation Required to Claim the Reduced Rate

Certificate of Domicile

A Certificate of Domicile from the DJP confirming Indonesian residency, required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

Form 41 must be filed electronically if the Certificate of Domicile does not carry all prescribed details, including the provider's Indonesian NPWP.

Self-Declaration and Service Agreement

A self-declaration of beneficial ownership and no-PE status, alongside the service agreement, scope of work and invoices, supports the treaty claim and any transfer pricing review of intra-group service fees.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian payer deducts TDS at 10% with valid documentation, or 20% without it.

Forms 145 and 146

Form 145 must be filed electronically before remittance; Form 146 is additionally required, certified by a Chartered Accountant, for remittances exceeding INR 5 lakh.

Section 395(1): Lower Withholding Certificate

The Indonesian provider can apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate permitting a lower or nil withholding rate.

GST Reverse Charge

Import of technical services from Indonesia separately attracts GST at 18% under the reverse-charge mechanism, generally available as input tax credit to the Indian recipient — a distinct liability from income-tax withholding.

Compliance Notes and Common Issues

Broad FTS Scope Without 'Make Available'

Because Article 12(3)(b) has no make-available condition, Indian tax authorities can characterise a wider range of cross-border service payments as FTS than under treaties with the USA or UK. Management fees, shared-services charges and technical support all typically qualify.

Secondment Arrangements

Payments for personnel seconded from an Indonesian group company are explicitly within scope under "provision of services of technical or other personnel." Whether a pure cost reimbursement without mark-up still constitutes consideration for services is a fact-specific question that Indian authorities frequently scrutinise.

No MFN Clause

Neither the treaty nor its Protocol contains a most-favoured-nation clause, so FTS concessions in other Indian treaties cannot be imported into the India-Indonesia DTAA.

Equalisation Levy Does Not Apply

India's Equalisation Levy on digital services was abolished in stages (the 2% levy from 1 August 2024, and the 6% online-advertisement levy from 1 April 2025), so digital and technical service payments to Indonesia are governed solely by Article 12 and domestic withholding, with no additional levy overlay.

Branch Profits Tax Cap Under the Protocol

Paragraph 4 of the treaty's Protocol caps any additional or branch profits tax on a permanent establishment's profits at 15%. This is chiefly relevant in the reverse direction — an Indian company operating a branch in Indonesia, where a domestic branch profits tax otherwise applies — since India itself does not levy a separate branch profits tax on an Indonesian company's Indian PE; the applicable 35% foreign-company rate already captures that profit.

Practical Examples and Calculations

Example 1: Technical Consultancy

An Indonesian engineering consultancy advises an Indian infrastructure company on a bridge design for a fee of INR 90 lakh.

• Without DTAA: TDS at 20% = INR 18 lakh; net receipt INR 72 lakh.
• With DTAA: TDS at 10% = INR 9 lakh; net receipt INR 81 lakh.
• Saving: INR 9 lakh.

Example 2: Personnel Secondment

An Indonesian parent seconds two mining engineers to its Indian subsidiary for a one-year project, invoicing INR 1.2 crore in salary reimbursement plus a 5% mark-up (INR 6 lakh). Because Article 12(3)(b) covers "provision of services of technical or other personnel," the full INR 1.26 crore is treated as FTS, with 10% TDS of INR 12.6 lakh.

Example 3: Where the Services Are Performed

An Indonesian firm sends engineers to commission equipment at an Indian plant, but contracts with, and is paid by, the Indian group's overseas procurement company. Because that payer is not a Contracting State or a resident of one, the Article 12(5)(a) payer test does not place the fee in either state. Article 12(5)(b) then deems the fee to arise where the services are performed — India — so India may tax it, subject to the 10% cap under Article 12(2). Had the same team done the work entirely from Jakarta, Article 12(5)(b) would point to Indonesia instead, and the fee would not be sourced to India under the treaty.

Frequently Asked Questions

What is the FTS tax rate under the India-Indonesia DTAA?

Article 12(2) caps fees for technical services paid to an Indonesian beneficial owner at 10% of the gross amount, versus India's domestic rate of 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

Does the India-Indonesia DTAA have a 'make available' clause for FTS?

No. Article 12(3)(b) taxes fees for managerial, technical or consultancy services, including provision of technical or other personnel, without requiring that technical knowledge be made available to the Indian recipient — broader than treaties with the USA, UK or Singapore.

What payments are excluded from the FTS definition?

Article 12(3)(b) excludes payments already covered under Article 14 (independent personal services) or Article 15 (dependent personal services). Salaries, wages and fees for independent professional services rendered personally by an individual therefore fall outside Article 12 and are taxed under those separate articles instead.

How does the source rule work if services are performed outside India?

Article 12(5)(a) generally treats FTS as arising where the payer is resident. Where that test does not place the fee in either state, typically because a third-country entity is the payer, Article 12(5)(b) deems the fee to arise where the services were actually performed. Services performed in India are therefore sourced to India even though the payer sits elsewhere, while services performed entirely in Indonesia are sourced to Indonesia.

Does the MLI Principal Purpose Test apply to FTS payments?

Yes. The India-Indonesia DTAA is a Covered Tax Agreement, so the MLI Principal Purpose Test can deny the 10% FTS rate where obtaining that rate was a principal purpose of the arrangement, in addition to India's domestic GAAR and the treaty's own beneficial-ownership condition.

What documentation is needed to claim the 10% FTS rate?

A Certificate of Domicile from Indonesia's Directorate General of Taxes, Form 41 (formerly Form 10F), a self-declaration of beneficial ownership and no-PE status, and the underlying service agreement. The Indian payer must file Form 145 electronically, and Form 146 for amounts exceeding INR 5 lakh.