Restructuring a Royalty Arrangement: TDS Reduced from 20% to 10%
Situation
A foreign company's royalty arrangement with its Indian licensee, worth about ₹2 crore a year, didn't clearly establish eligibility for the lower India-DTAA treaty rate, so the Indian payer was deducting TDS at the higher domestic rate of over 20%, roughly ₹40 lakh a year.
Approach
We reviewed the royalty agreement and the underlying treaty article, made the documentation adjustments needed to clearly support the treaty position, and helped the company secure the TRC and Form 41 (formerly Form 10F) required to substantiate the lower rate.
Outcome
TDS on the royalty dropped from over 20% to the 10% treaty rate, from about ₹40 lakh to ₹20 lakh a year, a recurring ₹20 lakh annual improvement in the company's India cash flow rather than a one-time refund.
Identities are anonymized to protect client confidentiality. The situation, approach, and figures reflect an actual engagement.
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