Foreign IT Company: Excess TDS Refund on FTS Payment
Situation
A foreign IT company received an FTS payment of about ₹40 lakh from an Indian client, and TDS was deducted at the default 20% (₹8 lakh) rather than the lower 10% treaty rate the company was entitled to, since no Lower Deduction Certificate had been obtained in advance.
Approach
We established the company's eligibility for the treaty rate by securing its TRC and Form 41 (formerly Form 10F), computed the excess tax withheld, and filed the company's Indian income tax return claiming credit for the TDS deducted and refund of the excess over the treaty rate.
Outcome
Tax on the ₹40 lakh payment came down from ₹8 lakh at 20% to about ₹4 lakh at the 10% treaty rate, with the ₹4 lakh difference refunded. For subsequent payments, the company now applies for a Lower Deduction Certificate upfront to avoid the refund cycle altogether.
Identities are anonymized to protect client confidentiality. The situation, approach, and figures reflect an actual engagement.
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