What Is Fees for Technical Services (FTS)?
Fees for Technical Services (FTS) is any consideration — including a lump sum — paid for rendering managerial, technical or consultancy services, including the provision of technical or other personnel. The definition, at section 9(7)(b) of the Income-tax Act, 2025 (section 9(1)(vii) of the Income-tax Act, 1961), specifically excludes consideration for a construction, assembly, mining or similar project undertaken by the recipient, and excludes any amount that would be salary income of the recipient. For a foreign company invoicing an Indian client for consulting, engineering, IT support, management services or technical know-how transfer, FTS is usually the category that determines how much Indian tax is withheld before the money leaves the country.
FTS sits alongside royalty as one of the two payment categories India taxes on a gross basis at source, rather than on net profit. Both are governed by parallel provisions throughout the Income-tax Act, and both typically share a single treaty article in India's DTAAs.
When FTS Is Deemed to Accrue in India
Section 9(7)(a) deems FTS income to accrue or arise in India — and therefore become taxable here — when it is payable by:
- the Government of India, in every case;
- a resident, except where the services are utilised in a business or profession the resident carries on outside India, or for earning income from a source outside India; or
- a non-resident, but only where the services are utilised in a business or profession the non-resident carries on in India, or for earning income from a source in India.
This means the test is where the services are utilised, not where they are physically performed. A consultant who delivers the entire engagement from outside India can still trigger Indian tax if the Indian payer uses the output for its Indian business.
How FTS Is Taxed Under Domestic Law
India taxes FTS in one of two ways, depending on whether the foreign recipient has a taxable presence in India connected to the contract.
Gross basis — no connected permanent establishment
Where the non-resident has no permanent establishment in India effectively connected with the contract, section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) taxes FTS received from the Government or an Indian concern, under an agreement made after 31 March 1976, at a flat 20% of the gross amount — with no deduction for expenses. The section applies only where "the agreement is approved by the Central Government where such agreement is with an Indian concern; or where the agreement relates to a matter included in the industrial policy, for the time being in force, of the Government of India, it is as per that policy." This 20% rate is the ceiling that a tax treaty then reduces.
Tax on the payment is deducted at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), which requires the Indian payer to withhold tax at the "rates in force" on any sum chargeable to a non-resident under the Act, before the amount is remitted.
Net basis — services effectively connected with a PE
Where the non-resident carries on business in India through a permanent establishment (or performs professional services from a fixed place of profession in India) and the contract giving rise to the FTS is effectively connected with that PE, section 59 of the Income-tax Act, 2025 (section 44DA of the Income-tax Act, 1961) applies instead. The FTS is then computed as business profits, with deductions allowed for expenses wholly and exclusively incurred for the PE's business — but section 59(2) blocks certain deductions, including head-office allocations not actually incurred for the Indian PE. This net-basis route generally applies whenever a DTAA's business-profits article (commonly Article 7) governs the income instead of the treaty's royalty/FTS article.
How DTAAs Reduce the FTS Rate
India's tax treaties typically cap the FTS rate below the 20% domestic rate, and most combine FTS with royalties in a single article rather than giving FTS its own article. A recurring test across these treaties is whether the services "make available" technical knowledge, experience, skill, know-how or processes to the recipient — meaning the recipient is left able to apply the technology independently, not merely to have received a report or advice.
| Treaty | FTS rate | Article | Make-available test? |
|---|---|---|---|
| United States (called "fees for included services") | 15% general; 10% ancillary to equipment | Art. 12(2)(a)(ii) / 12(2)(b) | Yes — Art. 12(4)(b), with a signed MOU on Art. 12 interpretation |
| United Kingdom | 15% general; 10% ancillary to equipment | Art. 13(2)(a)(ii) / 13(2)(b) | Yes — Art. 13(4)(c) |
| Singapore | 10% | Art. 12(2), definition Art. 12(4) | Yes — Art. 12(4)(b) |
| Germany | 10% | Art. 12(2), definition Art. 12(4) | No — Germany's Art. 12(4) covers managerial, technical or consultancy services with no make-available limb |
| Brazil | 10% | Art. 12-A(2), added by the 2022 protocol (in force 18 October 2025; effective in India from FY 2026-27) | Definition covers managerial, technical or consultancy services on a gross basis |
Not every treaty has an FTS article at all. India's treaty with Thailand contains no FTS provision — payments for technical, managerial or consultancy services fall instead under Article 7 (business profits, taxable in India only if the non-resident has a PE there) or, for individual professionals, the independent-personal-services article. Where an older treaty has no FTS article, the domestic 20% rate under section 207(2) applies in full unless the payment can instead be characterised as business profits under Article 7 with no PE in India.
Claiming the Treaty Rate
A treaty rate is never automatic. To have the Indian payer withhold at the lower treaty rate instead of the 20% domestic rate, the non-resident must furnish, before payment:
- a Tax Residency Certificate (TRC) from its country of residence;
- Form 41 (formerly Form 10F), giving the prescribed treaty-benefit information; and
- a self-declaration that it is the beneficial owner of the income and has a genuine right to use it, not merely a conduit obligated to pass it on.
The Indian remitter separately files Forms 145 and 146 (formerly Forms 15CA and 15CB) to certify that tax has been correctly withheld before the remittance leaves India; Form 146, the chartered accountant's certificate, is required for larger taxable remittances that lack a lower-deduction certificate from the Assessing Officer.
Why FTS Matters for Foreign Companies and Investors
FTS withholding affects cash flow on both sides of a cross-border services contract. A foreign parent invoicing its Indian subsidiary for management or technical support services will typically see 10-15% withheld at source if the group can rely on a favourable treaty, or 20% if it cannot establish treaty eligibility in time. Structuring the contract — and confirming the recipient's TRC and Form 41 are in place before the first invoice — avoids the default position of withholding at the higher domestic rate and later claiming a refund.
Getting the FTS versus royalty versus business-profits characterisation right also matters, because it changes both the rate and the compliance route. A consulting fee that genuinely makes available reusable technical know-how may be capped at 10% under a make-available treaty; the same fee re-characterised as a general service fee under a no-make-available treaty like Germany's could still sit at 10%, but under a treaty with no FTS article at all (like Thailand's), the analysis shifts entirely to whether a PE exists.
Practical Example
A Singapore-based engineering firm is paid INR 80 lakh by its wholly-owned Indian subsidiary for design consultancy that makes available technical know-how the subsidiary's engineers can apply independently going forward. The Singapore firm has no fixed place of business in India connected with this contract.
- Domestic law only: Without a treaty claim, the Indian subsidiary must withhold 20% of INR 80 lakh = INR 16 lakh under section 207(2) and section 393(2).
- With the India-Singapore DTAA: The Singapore firm furnishes its TRC and Form 41 before payment. The Article 12(2) rate of 10% applies (the make-available test in Article 12(4) is met), so withholding drops to INR 8 lakh — a difference of INR 8 lakh on this single invoice.
- If a PE existed instead: Had the Singapore firm instead executed the design work through a project office in India effectively connected with the contract, the fee would be taxed as business profits under section 59, on a net basis after allowable expenses, rather than at a flat rate on the gross amount.
Frequently Asked Questions
Is FTS the same as royalty?
No, though they are closely related and often share a single treaty article. Royalty covers payments for the use of intellectual property, equipment or processes; FTS covers payments for managerial, technical or consultancy services. Section 9(7)(b) expressly excludes construction, assembly and mining project fees, and salary income, from the FTS definition.
Does FTS withholding apply if the services were performed entirely outside India?
Often yes. Section 9(7)(a) deems FTS to accrue in India based on where the services are utilised — in the payer's Indian business or Indian-source income — not where the service provider physically sat while performing the work.
What happens if the recipient doesn't provide a Tax Residency Certificate in time?
The Indian payer has no basis to apply the treaty rate and must withhold at the domestic rate under section 207(2) — 20% of the gross payment — under section 393(2). The recipient can later claim a refund by filing an Indian tax return, but that ties up cash in the interim.
Why do some treaties call FTS "fees for included services" instead?
India's treaty with the United States uses the term "fees for included services" (FIS) rather than FTS, and its Article 12(4) covers only technical or consultancy services — not managerial services — subject to a make-available test glossed by a signed Memorandum of Understanding on Article 12.
What if the treaty with the recipient's country has no FTS article at all?
India's treaty with Thailand is a current example. Payments for technical or consultancy services fall to Article 7 (business profits), which India can tax only if the non-resident has a permanent establishment here; absent a PE, the payment escapes Indian tax under the treaty even though the domestic 20% rate under section 207(2) would otherwise apply.
See also: Section 393(2) — TDS on Payments to Non-Residents, Withholding Tax, and Double Taxation Avoidance Agreement (DTAA).
Paying a foreign consultant or receiving fees for technical services from an Indian client? Beacon Filing coordinates withholding-tax computation, treaty documentation, and Forms 145/146 filing so cross-border service payments clear at the correct rate.