If you run a company outside India and an Indian client pays you for your services, they often deduct Indian tax (TDS) before paying. Many foreign businesses simply write this off as lost. In many cases it is not lost at all. India's tax treaties can make that TDS fully refundable.
Why the TDS is cut in the first place
When an Indian business pays a foreign party, the law makes it deduct tax at source unless it is sure no tax is due in India. Being cautious, many Indian clients deduct a flat rate (often 10%). Whether India can actually tax your income is a separate question, decided by the tax treaty between India and your country.
What the treaty usually says
Most treaties separate two kinds of income:
- Business profits. Ordinary service income is business profit. India can tax it only if your company has a permanent establishment in India, meaning something like an office, a branch, or staff working here for a long period.
- Fees for technical services. Some treaties (the India-Singapore treaty is one) let India tax technical fees at a set rate, but only where the service makes technical knowledge or skills available to the client, so the client can use them on its own afterwards.
So if your company has no permanent establishment in India, and your service does not pass on know-how to the client, India usually has no right to tax the income. The TDS cut is then refundable.
How to get it back
The refund is claimed by filing an Indian income tax return for your company for that year, supported by:
- A Tax Residency Certificate from your home country.
- The required declaration form for treaty benefits.
- Your invoices, contract, and the TDS certificates from your Indian client.
Someone in India can file for you under a power of attorney limited to tax filing. That kind of limited authority does not by itself create a permanent establishment. Deadlines matter, so act soon after the year ends.
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