Withholding taxes on professional services

These are basically fee for technical services. If the services are actually taxable in India meaning they are either used in any project physically present in india then they are taxable in India by virtue of section 9 of Income tax act. Incase they’re not taxable by virtue of section 9 you can use form 15CA part D to remit the payment to UK without any tax withholding.

But if the services are taxable in India then they’ll suffer tax withholding. The rate can be either a lower 10% or 20% incase you don’t have PAN.

Now as far as form 10F is concerned you can only file that once you obtain PAN number in India. And in case you do as per section 115 of Income Tax Act you can have a lower tax deduction of 10% on fee for technical services and will also have no need to file Indian Tax Return by virtue of sub section 5 incase there is no other income apart from the withholding one.

Nothing can be done if you have no tax liability in your country.

Feel free to reach out to discuss further.

 

• Indian law (Sec 195): Payments to non-residents are subject to TDS if taxable in India.

• India–UK DTAA: Business profits taxable in India only if PE exists. FTS taxable only if “make available” condition is met.

• Practical: With TRC + Form 10F + No-PE declaration → Nil withholding is defensible.

• Risk: On-site work in India beyond 90 days may create a Service PE → exposure to Indian tax. That’s why client seeks indemnity.

• Your concern: With UK losses, any Indian WHT would be a dead cost (no credit usable).

• Advice:

  • Provide TRC/10F/No-PE declaration.

  • Negotiate indemnity wording or ask for gross-up clause if PE risk exists.

  • Track employee days in India to avoid PE.

- What would be the exact nature of services to be provided?

- Any WHT deducted by an Indian entity would result into loss if there are no taxes payable in UK

For detailed discussion you may opt for phone consultation

The core issue with your arrangement shared is the risk of a Permanent Establishment (PE) being created if your on-site work exceeds 90 days in a 12-month period. So you need to first have check on that, if it is not crossing 90 days than there is no tax implication in India

With respect to withholding, while a UK Tax Residency Certificate and Form 10F can lead to zero withholding tax, in my opinion even if client is not offering indemnity, you can add a clause that tax liability on the transaction in respective judication shall be of respective parties only. So it gives you indirect indemnity on the transaction

Options

1. Proceed with Nil WHT

   • Provide TRC + Form 10F + No-PE declaration.

   • Accept indemnity clause only if you’re comfortable with the risk (low in practice if you genuinely have no PE in India, but not zero).

2. Request escrow/withholding arrangement

   • Sometimes, parties agree to deposit tax into an escrow or jointly approach the Indian tax authority for a Section 195(2) application (lower/nil WHT order).

   • This reduces risk for both sides.

3. Contract structuring

   • Ensure contract clearly states services are rendered from the UK, with only occasional visits to India.

   • Keep travel days minimal to avoid creating a Service PE (often triggered if staff are in India for >90 days in a 12-month period).

Thanks & Regards,
CA Damini Agarwal