SaaS Startup: Nil-TDS on Payments to US Cloud Vendor
Situation
A growing SaaS startup was paying a US-based cloud infrastructure vendor about ₹36 lakh a year in subscription fees, and, treating the payment cautiously as "royalty," was withholding tax at 10% (about ₹3.6 lakh a year) every month.
Approach
We reviewed the nature of the cloud services against the India-US DTAA's royalty definition and relevant case law, concluded the payment did not constitute royalty, and helped the startup secure a nil-TDS certificate to formalize the position with its bank and vendor.
Outcome
TDS on the subscription payments came down from 10% to nil, freeing up the full ~₹3.6 lakh a year that had previously been withheld, and removed the recurring burden of filing refunds on payments that were never taxable in India to begin with.
Identities are anonymized to protect client confidentiality. The situation, approach, and figures reflect an actual engagement.
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