What does the India-US tax treaty mean for Indian freelancers and agencies?

The India-US income tax treaty (formally, the Convention between the United States of America and the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income) was signed in New Delhi on 12 September 1989 and entered into force on 18 December 1990.¹

This guide quotes the treaty text published by the IRS, including the 1989 Protocol and the memorandum of understanding on Article 12.¹ It does not repeat how to fill Form W-8BEN; see W-8BEN for Indian freelancers and W-8BEN-E for Indian companies. Whether a specific contract falls under one article or another depends on its facts, so confirm with a chartered accountant (CA) or US tax adviser where money is at stake.

What is the India-US tax treaty for Indian freelancers and agencies?

The India-US tax treaty is the 1989 Convention between India and the United States, with its Protocol and memorandum of understanding, which decides when the US may tax fees an Indian resident earns from a US client.¹ It is the treaty that applies when an Indian developer, designer, writer, consultant, tutor or agency earns fees from a US client.

• Signed: 12 September 1989, in New Delhi.¹
• In force: 18 December 1990.¹
• Effect: in India for taxable years beginning on or after 1 April 1991, and in the US for amounts paid on or after 1 January 1991 (Article 30).¹

Separately, the IRS treats income from personal services as sourced where the services are performed.² Work done entirely in India is therefore not US-source income in the first place, and the treaty question usually arises only when you travel to the US to work.²

Who does the India-US tax treaty apply to?

The India-US tax treaty applies to Indian residents earning from US clients, with Article 15 for individuals and firms of individuals, Article 7 for companies and other enterprises, and Article 12 for royalties and fees for included services.¹

Which row applies depends on what the payment is for and where the work was done.

How do you apply the India-US tax treaty to a fee from a US client?

You apply the India-US tax treaty to a fee from a US client by checking where the work was done, classifying the fee, checking presence in the US, documenting treaty status to the payer, and claiming credit in India for any US tax.¹²³⁴

1. Check where the work is done: work done entirely in India is not US-source income.²
2. Classify the fee: professional services (Article 15), business profits (Article 7), or a royalty or fee for included services (Article 12).¹
3. Count days and check for a fixed base or PE: the Article 15 and Article 5 tests below.¹
4. Document treaty status to the payer: payers ask for Form W-8BEN or W-8BEN-E, and a company certifies the limitation on benefits test it meets on line 14b of W-8BEN-E.³
5. Claim credit in India under rule 76 of the Income-tax Rules, 2026, in Form No. 44.⁴

See foreign tax credit for the filing steps.

When can the US tax an Indian freelancer under Article 15?

The US can tax an Indian freelancer under Article 15 (Independent Personal Services) only if the freelancer has a fixed base regularly available in the US or stays there 90 days or more in the relevant taxable year.¹ Article 15 covers an individual, or a firm of individuals other than a company, who performs professional services or other independent activities.¹ The income "shall be taxable only in the first-mentioned state", meaning India for an Indian resident, except in two cases where the US may also tax it:¹

1. The person has a fixed base regularly available in the US for performing the activities. Only the income attributable to that fixed base may then be taxed in the US.¹
2. The person's stay in the US is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.¹

Article 15(2) says "professional services" includes independent scientific, literary, artistic, educational or teaching activities, and the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.¹ So a freelance copywriter, illustrator, online tutor or engineering consultant working from India generally falls here.

When can an Indian business have a permanent establishment in the US?

An Indian business can have a permanent establishment (PE) in the US when it has "a fixed place of business through which the business of an enterprise is wholly or partly carried on" there, under Article 5 of the India-US treaty, which lists examples such as an office or branch.¹

Article 7 (Business Profits) covers an enterprise, such as a private limited company, LLP or partnership firm running an agency or IT business.¹ The profits of an enterprise of one country "shall be taxable only in that state unless the enterprise carries on business in the other Contracting state through a permanent establishment situated therein."¹ Article 7(7) defines business profits to include income from the furnishing of services other than included services as defined in Article 12.¹

For service businesses, Article 5(2)(l) adds the furnishing of services, other than included services, within a country by an enterprise through employees or other personnel, but only if:¹

• 90-day test: activities of that nature continue in that country for a period or periods aggregating more than 90 days within any twelve-month period;¹ or
• Related enterprise: the services are performed in that country for a related enterprise within the meaning of Article 9(1).¹

Paragraph I of the Protocol adds that where the time period for a PE under Article 5(2)(j), (k) or (l) spans two taxable years, a PE is not deemed to exist in a year in which the activity continues for less than 30 days in that taxable year.¹ Article 5(4) and (5) cover dependent agents who habitually conclude contracts or secure orders for the enterprise.¹ The PE guide sets out these rules in full.

What rates apply under Article 12 of the India-US treaty?

Article 12(2) of the India-US treaty caps US tax on royalties and fees for included services at 15% of the gross amount, or 10% for equipment-related payments, when the beneficial owner is a resident of India.¹

The treaty took effect in India for taxable years beginning on or after 1 April 1991 and in the US for amounts paid on or after 1 January 1991 (Article 30), so the "subsequent years" rate of 15% is the one in the treaty today.¹ Paragraph IV of the Protocol adds that if the US taxes fees for included services on a net basis, the total tax may not exceed the gross fee multiplied by the rate in Article 12(2).¹ Under Article 12(6), these caps do not apply where the income is attributable to a US PE or fixed base; Article 7 or 15 applies instead.¹

What are "fees for included services" under the India-US treaty?

"Fees for included services" under the India-US treaty are payments for technical or consultancy services, including through the provision of technical or other personnel, if the services are ancillary and subsidiary to a royalty-generating right, property or information, or if they "make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design" (Article 12(4)).¹

• Exclusions: Article 12(5) excludes several payments, including amounts paid for teaching in or by educational institutions, for services for the personal use of the individual paying, and amounts paid "to any individual or firm of individuals (other than a company) for professional services as defined in Article 15".¹
• Memorandum of understanding: the memorandum attached to the treaty explains that under Article 12(4)(b), consultancy services which are not of a technical nature cannot be included services, and gives worked examples.¹

What happens if US tax is paid on an Indian exporter's fee?

If US tax is paid on an Indian exporter's fee, Article 25(2)(a) requires India to allow a resident of India a deduction from Indian tax equal to the income tax paid in the US, not exceeding the part of Indian tax attributable to that income.¹

• Rule 76: implements this; credit is the lower of the Indian tax and the foreign tax on that income.⁴
• Excess US tax: US tax above the treaty rate is ignored.⁴
• Form: the claim is made in Form No. 44.⁴

Keep the US tax records with the invoice for the claim.

How is US tax and Indian credit calculated under the India-US treaty?

US tax on a royalty under the India-US treaty is capped at 15% of the gross amount, and the Indian credit is the lower of that US tax and the Indian tax on the same income.¹⁴

Say a Bengaluru illustrator licenses rights to use her artwork to a US publisher for $10,000. That is a royalty for the use of a copyright of an artistic work under Article 12(3)(a), so the US may tax it at no more than 15% of the gross amount, provided the illustrator documents treaty eligibility to the payer.¹³

1. US cap: 15% of $10,000 is $1,500.¹
2. Indian tax on that income: worked out under Indian tax rules for the illustrator.⁴
3. Credit: the lower of the US tax paid within the cap and the Indian tax on that income.⁴
4. Excess: any US tax above $1,500 is above the treaty rate and is ignored for credit.⁴

Work out the Indian tax figure with a chartered accountant, because it depends on total income.

Do Indian companies have to meet the limitation on benefits test in the India-US treaty?

Indian companies have to meet the limitation on benefits test in the India-US treaty: Article 24 allows a person other than an individual to claim treaty relief in the US only if it meets one of the tests in that article.¹

• Ownership test: more than 50% beneficial ownership by residents of India or the US (or US citizens) together with a base erosion condition.¹
• Active business test: income derived in connection with the active conduct of a trade or business in India.¹
• Listed company test: substantial and regular trading of the company's principal class of shares on a recognised stock exchange.¹

Form W-8BEN-E asks the company to certify the test it meets on line 14b.³

What are the common mistakes with the India-US tax treaty?

The common mistakes with the India-US tax treaty are treating work done in India as US-source income, treating every consultancy fee as a fee for included services, and missing the limitation on benefits test.¹²³

• Source of income: work done entirely in India is not US-source income.²
• Non-technical consultancy: the memorandum says consultancy services that are not of a technical nature cannot be included services.¹
• Professional services exclusion: Article 12(5) excludes professional services paid to individuals or firms of individuals under Article 15.¹
• Missing line 14b: a company must certify its limitation on benefits test on Form W-8BEN-E.³
• Claiming excess US tax: US tax above the treaty rate is ignored for credit in India.⁴

Whether a specific contract falls under one article or another depends on its facts, so confirm with a chartered accountant or US tax adviser.