Fees for Technical Services Tax Rate Between India and Malaysia Under DTAA

Quick answer: Under the India-Malaysia DTAA, fees for technical services (FTS) are capped at 10% under Article 13(2), 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) -- a 50% reduction. FTS sits in its own stand-alone Article 13 (not combined with royalties), defined broadly as any managerial, technical or consultancy service, including the provision of personnel. Critically, the treaty has no 'make available' clause, so routine services can qualify as FTS even without any transfer of technical knowledge to the recipient. The treaty was signed 9 May 2012, entered into force 26 December 2012, and became effective in India from 1 April 2013.

Key takeaways:

• Flat 10% DTAA FTS rate vs 20% domestic rate -- a 50% reduction
• FTS occupies its own Article 13, separate from royalties (Article 12) -- this shifts capital gains to Article 14, independent personal services to Article 15, and dependent personal services to Article 16
• No 'make available' clause -- broader than the India-USA or India-UK style FTS articles
• Article 13(3) expressly excludes payments covered by Article 15 (independent personal services) and Article 16 (dependent personal services)
• FTS connected with a permanent establishment or fixed base is taxed as business profits instead of at the 10% capped rate
• The MLI's Principal Purpose Test applies to this treaty in India from 1 April 2022, and Labuan entities lose treaty benefits unless they elect into ordinary Malaysian income tax

Fees for Technical Services Tax Rate Between India and Malaysia

Article 13 of the India-Malaysia DTAA -- signed 9 May 2012 at Putrajaya, in force from 26 December 2012, and effective in India from 1 April 2013 -- deals with fees for technical services (FTS) in a dedicated, stand-alone article. This is a structural choice: many of India's older treaties fold FTS into the same article as royalties, but the India-Malaysia treaty gives it its own numbering, which pushes capital gains to Article 14, independent personal services to Article 15, and dependent personal services (employment income) to Article 16.

The treaty caps the source-state withholding on FTS at 10% of the gross amount, the same rate as royalties, but the scope of what counts as FTS is notably wide because of one missing feature: there is no 'make available' clause.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under Indian domestic law, fees for technical services paid to a non-resident are taxed at 20% (plus applicable surcharge and cess) under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) -- a rate that doubled from 10% following the Finance Act 2023.

DTAA Rate (With Treaty)

Article 13(2) provides that "the tax so charged shall not exceed 10 percent of the gross amount of the fees for technical services," provided the recipient is the beneficial owner. This halves the domestic rate, but -- unlike the royalty article -- the absence of a make-available test means more payments fall within scope in the first place.

Effective Tax Savings

For a Malaysian consulting firm receiving INR 30 lakh in fees from an Indian client for project management services, the treaty reduces withholding from INR 6 lakh (at 20%) to INR 3 lakh (at 10%) -- a saving of INR 3 lakh, assuming the services do not create a permanent establishment in India.

Article 13(3): Definition of Fees for Technical Services

Article 13(3) defines FTS as "payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Article 15 and Article 16 of this Agreement." Article 15 covers independent personal services (professional services performed by an individual in their own capacity) and Article 16 covers dependent personal services (ordinary employment income) -- payments properly characterised under either of those articles fall outside the FTS definition even if they involve technical work.

No 'Make Available' Requirement

Unlike the India-USA DTAA, which taxes technical services as FTS only where the service "makes available" technical knowledge, skill, or know-how to the recipient (so that the recipient could apply it independently in future), the India-Malaysia treaty has no such filter. Any payment for managerial, technical, or consultancy services rendered by a Malaysian resident to an Indian entity -- or vice versa -- is potentially FTS at 10%, regardless of whether any technical knowledge is transferred or retained by the recipient. This materially widens the scope of FTS compared with make-available treaties, and increases the likelihood that routine services (such as ordinary consulting, project supervision, or IT support) will be characterised as FTS rather than escaping tax altogether as business profits with no Indian PE.

Who Qualifies for the Reduced Rate

Beneficial Ownership

As with the other income articles, the 10% cap requires the recipient to be the beneficial owner of the fee -- a pass-through arrangement does not qualify.

Article 13(4): Permanent Establishment Exception

Article 13(4) removes the 10% cap where the beneficial owner carries on business in the state where the fees arise through a permanent establishment, or performs independent personal services from a fixed base there, and the fees are effectively connected with that PE or fixed base. In that case the FTS is taxed as business profits under Article 7 (or under Article 15) on a net basis, rather than at the 10% capped rate on the gross amount -- a materially different tax outcome depending on the underlying margin.

Article 13(5): Source Rule

Article 13(5) provides that "fees for technical services shall be deemed to arise in a Contracting State when the payer is a resident of that State" -- the same payer-residence source rule used for interest and royalties.

Anti-Abuse Rules: MLI PPT and the Labuan Carve-Out

Both India and Malaysia list this treaty as a Covered Tax Agreement under the Multilateral Instrument (MLI). Because of India's Article 35 substitution, the MLI's Principal Purpose Test (PPT) applies in India from 1 April 2022 for this treaty -- the 10% cap can be denied where obtaining the reduced rate was one of the principal purposes of a services arrangement lacking genuine economic substance. Separately, clause 2 of the Protocol signed alongside the Agreement denies treaty benefits to Malaysian entities taxed under the Labuan Business Activity Tax Act 1990, unless they irrevocably elect into the ordinary Malaysian Income Tax Act 1967.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

A Tax Residency Certificate from the Inland Revenue Board of Malaysia (LHDN), covering the relevant year, is required to support a 10% FTS claim.

Form 41 (formerly Form 10F)

Form 41 must be filed electronically on the Indian Income Tax e-filing portal, stating the service provider's name, status, Malaysian tax identification number, period of residence, and the nature of the services rendered.

Self-Declaration, No-PE Certificate, and Service Agreement

A self-declaration of beneficial ownership, confirmation that the services do not create a permanent establishment or fixed base in India, and a copy of the underlying service agreement -- describing the scope of work clearly enough to distinguish FTS from independent personal services or ordinary business income -- round out the standard documentation package.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

The Indian payer must deduct tax at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), applying the 10% treaty rate once the service provider's documentation is on file.

Forms 145 and 146

The Indian payer must file Form 145 (formerly Form 15CA) electronically before remittance, and obtain Form 146 (formerly Form 15CB) from a chartered accountant where the remittance exceeds INR 5 lakh.

Section 395(1): Lower Withholding Certificate

Where the payer cannot apply the treaty rate directly, the Malaysian service provider can apply to the Indian Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising withholding at the certified lower or nil rate.

Common Classification Disputes

FTS vs business profits with no Indian PE. Because there is no make-available test, the main defence against Indian FTS taxation is showing the service falls outside Article 13(3) altogether -- for example, because it is genuinely an independent personal service under Article 15 rendered by an individual, or because it does not involve managerial, technical, or consultancy content at all (a pure sale of goods, for instance). Once a payment is accepted as FTS, the 10% rate applies regardless of whether knowledge was transferred.

FTS vs royalty. Some services shade into royalty territory -- for example, access to a database compiled using proprietary know-how. Because both articles cap the rate at the same 10%, the practical tax outcome is often identical, but correct classification still matters for documentation (a royalty needs a licence agreement; FTS needs a service agreement) and for how the payment is described in transfer pricing documentation.

RBI and FEMA Compliance for Service Fee Remittances

Payments to a foreign service provider -- including a Malaysian consultancy or engineering firm -- are remitted under the current-account automatic route and generally do not require prior Reserve Bank of India approval, provided the payment is genuinely for services rendered under a bona fide service agreement. The authorised dealer bank handling the remittance will typically require the underlying service agreement or scope-of-work document, confirmation of the withholding applied under section 393(2), and Forms 145/146 before releasing funds. Where the recipient is a related party, the same transfer pricing scrutiny that applies to royalties applies equally to intra-group management or technical service fees, and contemporaneous benchmarking documentation is advisable.

How Malaysia's FTS Article Compares

Malaysia's 10% FTS rate matches many of India's other treaties, but the absence of a make-available clause puts it in the same broader-scope category as older agreements rather than the narrower, technology-transfer-focused FTS articles found in some newer treaties. For businesses used to structuring service contracts around a make-available test elsewhere in their group, the India-Malaysia treaty requires a different mindset: the question is not whether knowledge was transferred, but simply whether the payment is for managerial, technical, or consultancy services at all, and whether it is properly excluded as an independent or dependent personal service instead.

Practical Example

A Malaysian engineering firm provides three months of on-site technical supervision to an Indian manufacturing client for INR 45 lakh, with no separate transfer of proprietary technical documentation and no permanent establishment created in India (the engagement is short and project-specific). Because the India-Malaysia treaty has no make-available requirement, this payment is FTS under Article 13(3) regardless of whether the Indian client's own staff could replicate the work afterwards. With a valid TRC and Form 41 on file, Indian withholding is capped at 10% under Article 13(2): INR 4.5 lakh, instead of the 20% domestic rate (INR 9 lakh) -- a saving of INR 4.5 lakh.

For the full treaty text and every other income category, see our India-Malaysia DTAA complete guide and the withholding tax rates summary for India to Malaysia.

Frequently Asked Questions

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

Article 13(2) caps the withholding tax on fees for technical services at 10% of the gross amount, provided the recipient is the beneficial owner. The domestic Indian rate without the treaty is 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025.

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

No. Unlike the India-USA DTAA, the India-Malaysia treaty does not contain a 'make available' requirement. Any payment for managerial, technical, or consultancy services rendered between residents of the two countries is potentially FTS at 10%, regardless of whether technical knowledge is transferred to the recipient.

Why is FTS in a separate article from royalties?

The India-Malaysia treaty gives FTS its own Article 13, unlike some other Indian treaties that combine royalties and FTS in a single article. This shifts the treaty's later articles: capital gains sits at Article 14, independent personal services at Article 15, and dependent personal services at Article 16.

What services are excluded from the FTS definition?

Article 13(3) excludes payments covered by Article 15 (independent personal services performed by an individual) and Article 16 (dependent personal services, i.e. ordinary employment income). Payments properly falling under either article are taxed under that article's rules instead of as FTS.

What happens if the technical services create a permanent establishment in India?

Article 13(4) removes the 10% cap where the fees are effectively connected with a permanent establishment or fixed base the Malaysian service provider has in India. The fees are then taxed as business profits under Article 7 on a net basis at ordinary corporate rates.

How does the MLI affect FTS taxation under this treaty?

Since 1 April 2022, the MLI's Principal Purpose Test applies to this treaty in India and can deny the 10% rate where obtaining the benefit was a principal purpose of a services arrangement lacking genuine economic substance.