Paying the foreign parent for services, brand and technology: what India checks

Short answer: a fee paid by an Indian subsidiary to its foreign parent, whether called a management fee, royalty, technical fee or cost recharge, is tested four times: for deductibility (were services actually received?), for withholding (20% plus surcharge and cess under domestic law, or a lower treaty rate with a TRC and Form 41), for GST (IGST under reverse charge, even where nothing is charged) and for transfer pricing (it is an international transaction that must be at arm's length). All four turn on the same evidence, which is why a good benefit file is worth more than a good invoice.

What the payments are, and why the label matters less than the facts

Four kinds of payment usually flow from an Indian subsidiary to its parent:

The characterisation decides the withholding rate, the treaty article, the GST position and the transfer pricing method, so it should be decided once and used everywhere. A payment described as a reimbursement in the Form 146 certificate, as a service in the GST return and as a royalty in the transfer pricing report fails three times.

The benefit test: what the department actually asks

The expense is deductible under the general business-expense provision, Section 37 of the 1961 Act, now Section 34 of the 2025 Act. The principle is rarely the dispute. The dispute is whether the services happened and whether they benefited the Indian company.

A transfer pricing officer reviewing an intra-group service charge will usually work through the same questions:

1. Were the services actually rendered? Names, dates, deliverables. An allocation of global head-office cost by headcount, with nothing more, invites the answer "no".
2. Did the Indian company need them? Would an independent company in its position have paid for this?
3. Do they duplicate something the Indian company already does? A regional HR fee is hard to defend where the subsidiary has its own HR team doing the same work.
4. Are they shareholder activities? Group consolidation, board reporting to the parent, investor relations and the parent's own compliance serve the shareholder, not the subsidiary, and should not be charged to it.
5. Is the price at arm's length? Cost, the allocation key and any markup, benchmarked.

The answer to all five is a documentation file, kept as the year runs, not reconstructed in the assessment:

• the intercompany agreement, signed before the services began, describing the services specifically;
• time records or activity logs of the parent's staff who provided them;
• deliverables: reports, emails, presentations, system access logs;
• the cost pool, the allocation key and the arithmetic, reconciled to the invoices;
• a short note, for each service line, of what the Indian company used it for.

Where a withholding failure occurs, a separate problem arises: payments to non-residents on which tax was deductible but not deducted are disallowed under Section 40(a)(i) of the 1961 Act, carried into Section 35 of the 2025 Act, until the tax is paid. The deduction and the withholding are therefore linked, not independent.

Withholding: domestic rate, treaty rate and the "make available" clause

Tax on a payment to a non-resident is deducted under Section 195 of the 1961 Act, which for tax year 2026-27 onwards sits in the non-resident table in Section 393(2) of the Income-tax Act 2025.

The domestic rate

For royalty and fees for technical services paid to a foreign company, the rate is 20% of the gross amount under Section 115A of the 1961 Act (Section 207 of the 2025 Act). The Finance Act 2023 raised it from 10%. Surcharge and 4% health and education cess are added:

The treaty rate

Where the parent is resident in a treaty country and is the beneficial owner of the payment, the lower treaty rate applies. From the treaty texts:

Treaty rates are applied to the gross amount, and in practice without adding surcharge and cess. But three conditions have to be in place before the payment:

• A tax residency certificate (TRC) from the parent's home tax authority for the relevant period.
• Form 41 (formerly Form 10F), filed electronically on the Indian tax portal by the parent, with the details the TRC does not contain.
• Usually an Indian tax return from the parent. Non-residents whose only Indian income is royalty, fees or dividends have been excused from filing where tax was withheld at the Section 115A rate. Since the domestic rate rose to 20%, a parent taking the lower treaty rate no longer falls within that exemption, which in turn means it needs a PAN.

The finance team should also collect a no-PE declaration: the parent's confirmation that it has no permanent establishment in India to which the payment is effectively connected. The treaty rates in the royalty articles do not apply to income connected with a PE; that income is taxed as business profits instead. The declaration does not prove the absence of a PE, but it records the basis on which the rate was applied. Whether a PE exists is a question of conduct, not paperwork, and is covered in permanent establishment risk for a foreign parent.

"Make available"

The US, UK, Singapore and Netherlands treaties tax technical services at source only where they make available technical knowledge, experience, skill, know-how or processes, or transfer a technical plan or design. The courts read this as requiring that the recipient can apply the knowledge independently afterwards.

That is often decisive for a management fee. Routine HR administration, IT support or a monthly regional finance review may leave nothing the Indian company can apply on its own. If so, the payment is business profits of the parent under the treaty, taxable in India only through a PE, and the withholding may be nil.

Two cautions. First, it is a treaty argument, so it needs the TRC, Form 41 and the facts to support it, and the Singapore treaty also covers services of a "managerial" nature. Second, claims under the most-favoured-nation clauses in the Netherlands, France and Switzerland protocols to import a narrower definition from another treaty were rejected by the Supreme Court in Nestle SA (19 October 2023), which held that such benefits need a separate notification.

Where the character of the payment is genuinely uncertain, an application to the Assessing Officer for a determination of the rate, under Section 195(2) of the 1961 Act and now the certificate provision in Section 395 of the 2025 Act, settles it before the money moves. The treaty mechanics for the parent are in TRC and Form 41.

GST: reverse charge on services from the parent

Services the parent supplies to the Indian subsidiary are an import of services. The Indian company pays IGST under reverse charge, at the rate for the service (18% for most management, consultancy and technical services), in cash, and takes it back as input tax credit if it is eligible.

Three points that matter for a related-party arrangement:

• No consideration is needed. Schedule I to the CGST Act treats an import of services from a related person outside India, in the course or furtherance of business, as a supply even where nothing is charged.
• Timing. Where the supplier is an associated enterprise outside India, the time of supply is the date of entry in the Indian company's books or the date of payment, whichever is earlier. An accrual at year end starts the reverse-charge clock.
• Valuation. Related-party supplies are valued at open market value under Rule 28 of the CGST Rules. Circular 210/4/2024-GST (26 June 2024) clarified that where the recipient is entitled to full input tax credit, the invoice value is accepted as the open market value, and where no invoice is raised the value may be taken as nil.

The circular solves the problem only for a company with full credit. A subsidiary that makes exempt supplies, or whose credit is partly blocked, must value the imported service at open market value and pay GST it cannot fully recover. Where the parent sends personnel rather than services, the GST analysis is different again and is set out in secondment and the GST position.

Transfer pricing: every one of these is an international transaction

A payment to a non-resident associated enterprise is an international transaction (Section 92B of the 1961 Act, Section 163 of the 2025 Act). Its price must be at arm's length, determined by a prescribed method, and the documentation kept under Rule 10D (Rule 84 of the 2026 Rules).

In practice:

• Services are usually benchmarked on the parent's cost plus a markup, tested against comparable service providers, with the benefit test above as the first question.
• Royalties are benchmarked against comparable licence agreements, and the officer will ask what the brand or technology adds to the Indian company's own margins.
• Aggregation. A subsidiary that pays a royalty and a service fee and earns a cost-plus margin from the parent will find the officer looking at the total, not each line.

The accountant's report on these transactions is Form 3CEB for FY 2025-26, due 31 October 2026, and Form 48 for tax year 2026-27 onwards. What it covers is in Form 3CEB, now Form 48.

Pure reimbursement: when it holds, and when it is taxed as technical fees

"It is only a reimbursement" is the most common answer to a withholding question, and the least tested.

When it holds. The Supreme Court in A.P. Moller Maersk (17 February 2017) held that the recovery of a share of the cost of a global system, with no profit element and no technical service rendered, was not income. The conditions that make a reimbursement argument work are:

• the cost is a third-party cost the parent paid on the subsidiary's behalf, such as a licence, insurance premium or travel;
• it is passed on at cost, with no markup, and supported by the third party's invoice;
• the parent renders no service in the process, beyond paying;
• the allocation key, where the cost is shared, is documented and reasonable.

When it fails. A recharge of the parent's own staff costs for work those staff do for the subsidiary is payment for services. In Centrica India Offshore (Delhi High Court, 25 April 2014), salary costs of seconded employees reimbursed to the overseas companies were held to be fees for technical services. The absence of a markup does not change the character of the underlying payment; it goes to price, not to nature.

The same logic applies to share-based payments recharged by a parent, set out in ESOP recharge from a foreign parent.

At the remittance: Forms 145 and 146

Before the bank sends the money, the Indian company files Form 145 (formerly 15CA). Where the payment is chargeable to tax and exceeds ₹5 lakh in the tax year, it also needs Form 146 (formerly 15CB), a chartered accountant's certificate on the nature of the payment, the applicable provision and the rate.

The Form 146 commits the characterisation in writing before the transfer pricing report exists, so it should be written with that report in view.

One FEMA point also belongs here. Under Schedule III to the Current Account Transactions Rules 2000, remittances for consultancy services procured from outside India above USD 1 million per project (USD 10 million for infrastructure projects) need prior RBI approval. Most intra-group fees are recurring rather than project-based, but a large one-off consulting engagement routed through the parent should be checked with the authorised dealer (AD) bank first.

The file that answers all four tests

1. A written agreement, signed before the services start, describing services specifically rather than "such support as may be required".
2. Evidence of services month by month: who, what, and what the Indian company used it for.
3. The cost pool and allocation key, reconciled to the invoices.
4. A characterisation note: royalty, technical fee, business profits or reimbursement, and why, applied identically in the Form 146, the GST return and the transfer pricing report.
5. The parent's TRC, Form 41 acknowledgement and no-PE declaration, current for the period of payment.
6. Reverse-charge GST paid in the month the liability arose, and the credit position checked.

Point 4 is the one most groups skip, because the four tests are handled by four different people at four different times.

This note sets out the general position as at 23 September 2026 for payments by an Indian company to a foreign parent. Treaty rates and definitions are quoted from the treaty texts as published; the rate that applies to a specific payment depends on its character, on the parent's eligibility, on any principal purpose test introduced by the Multilateral Instrument, and on documentation held at the time of payment. Confirm the characterisation, the treaty position and the GST credit position before the remittance, not after it.