Manufacturing Company: Correct TDS on Royalty to German Partner
Situation
An Indian manufacturing company was paying its German technology partner about ₹40 lakh a year in royalty, and, unsure whether to apply the Act rate or the DTAA rate, was preparing to withhold cautiously at close to 20% (roughly ₹8 lakh) rather than the correct, lower treaty-backed rate.
Approach
We analyzed the royalty arrangement against both the Act and the DTAA, determined the correct rate of about 10.9% (10% plus applicable surcharge and cess), prepared the Form 145/146 (formerly Form 15CA/15CB) certification for the remittance, and set up a repeatable process for future payments to the same partner.
Outcome
TDS on the ₹40 lakh annual royalty came down from ~20% to ~10.9%, from about ₹8 lakh to roughly ₹4.4 lakh, a recurring saving of over ₹3.5 lakh a year, while also avoiding any risk of disallowance under Section 40(a)(i).
Identities are anonymized to protect client confidentiality. The situation, approach, and figures reflect an actual engagement.
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