Construction PE uses a more-than-120-day test, not the service-PE calendar
Article 5(2)(k) of the India–US DTAA covers a building site, construction, installation or assembly project, and connected supervisory activities continuing for more than 120 days in any twelve-month period, together with other covered sites, projects or activities. Exactly 120 days does not cross that particular duration threshold. The Protocol also contains a separate less-than-30-day taxable-year exception where the threshold period spans two taxable years. Both tests need a project chronology, not merely payroll headcount or an annual invoice total.
This guide is checked on 23 October 2026 and focuses on a qualifying US treaty enterprise undertaking covered work in India. It assumes treaty eligibility is separately established. Read Article 5(2)(k), Article 7 and Protocol paragraph I alongside the official US Treasury technical explanation of Article 5. Do not transplant a different treaty’s six-month or nine-month threshold, or use the India–US service-PE ninety-day test for every construction contract.
Build the enterprise-level project chronology first
| Chronology field | What to establish | Why it matters |
|---|---|---|
| Legal character | Identify the actual construction, installation, assembly or connected supervision | A contract label does not itself decide which treaty provision applies |
| Physical commencement | Evidence when work physically begins in India | The technical explanation identifies physical commencement as the start of this duration analysis |
| Covered project series | Identify the enterprise’s other covered sites and projects | The treaty wording and technical explanation require a combined review rather than an automatic new allowance per contract |
| Twelve-month window | Test the relevant rolling windows across year ends | A financial-year reset can conceal a threshold crossing |
| Taxable-year split | Allocate the covered period to the relevant Indian tax years | The Protocol’s less-than-thirty-day exception is a separate year-level conclusion |
Retain site mobilisation records, work-start confirmations, installation and supervision reports, handover documents and the enterprise’s project register. Contract signing, an advance payment and physical commencement can fall on different dates. Identify any preliminary activity that is itself relevant work rather than assuming all earlier visits are either automatically included or automatically excluded.
Separate elapsed activity from employee-days and invoice-days
The relevant enquiry is the duration of the covered site, project or activities. A continuous forty-day site does not become a 120-day project merely because three employees work there. Conversely, excluding every day without an employee attendance entry can understate the site chronology. Explain the actual project continuity and any interruptions; do not let a spreadsheet substitute headcount arithmetic for the treaty test.
Connected supervision is expressly within the construction provision. Identify its location, connection and period, then avoid double counting the same calendar interval merely because both a construction team and a supervisor were present. Where multiple sites overlap or an interruption has an uncertain legal character, retain the dated facts and a reasoned counting conclusion. The worked aggregation cases below deliberately use non-overlapping periods so their arithmetic does not predetermine an unresolved overlap issue.
A year-end does not restart the twelve-month test
The treaty uses any twelve-month period. Review windows spanning 31 March and maintain a continuing enterprise-level record. The Protocol then says a PE is not deemed to exist in a taxable year where the covered use/site/project/activity continues for periods aggregating less than thirty days, where the relevant threshold period extends over two taxable years. Thirty is not less than thirty. The shorter year’s days still form part of the threshold chronology; the Protocol is not a direction to delete them before testing the total.
For the Indian-host examples, the year split follows 1 April–31 March. The US technical explanation illustrates the Protocol with its own calendar-year example; do not copy that calendar cut-off into an Indian taxable-year schedule without examining the applicable definition. Document the relevant jurisdiction and year before applying the exception.
A PE conclusion is followed by an attribution analysis
Passing the duration test is not a statutory flat-rate tax calculation on gross contract receipts. Article 7 requires a separate business-profit analysis, supported by functions, assets, risks, books and expenses. Do not assume that only receipts after day 120 matter, or that all global contract revenue becomes taxable solely because a PE exists. Establish the relevant PE period and income attribution, including the Protocol’s year-level effect.
Failure of this duration test also does not establish that every other Indian tax issue disappears. Examine any other applicable PE basis, income article, domestic charge, withholding obligation and treaty protection on the actual facts. This article does not apply a universal tax rate, surcharge or cess to a project-day count.
For Indian tax years beginning on or after 1 April 2026, the Income-tax Act, 2025, as amended by Finance Act, 2026 supplies the current domestic framework, including section 159’s treaty provisions and section 536’s savings/continuation rules. A chronology crossing 31 March 2026 must preserve the earlier-year analysis rather than treating all periods as governed by a relabelled legacy section number. The new Act does not restart the treaty project clock.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: Exactly 120 days, followed by one extra day
Assume a covered continuous site from 1 April to 29 July 2026, counting both evidenced dates: 120 calendar days. That does not satisfy more than 120 days under Article 5(2)(k). Continuing through 30 July produces 121 days and crosses this threshold, subject to the complete treaty analysis and other relevant facts.
Illustrative example 2: Contract date and physical start differ
A contract is signed on 15 March 2026, but assume there is no earlier relevant physical work and the covered site runs from 1 May to 28 August 2026 inclusive. That physical-work interval is 120 days. Do not start this particular duration working on 15 March solely because that is the signature date.
Illustrative example 3: Sequential covered sites
Assume the same enterprise undertakes covered site A for 70 days and site B for 55 non-overlapping days within the same relevant twelve-month period. The combined covered period is 125 days. On these assumptions, giving each site a separate 120-day allowance would miss the aggregation required by the treaty and technical explanation.
Illustrative example 4: Construction and connected supervision
Assume 100 covered construction days and a further 25 non-overlapping days of qualifying connected supervisory activity in India within the same twelve-month period. Combined duration is 125 days. Omitting the supervisory phase would incorrectly leave the schedule at 100 days.
Illustrative example 5: Three people do not triple a site’s calendar duration
Assume a covered site continues for exactly forty calendar days, with three employees present throughout. Attendance totals 120 employee-days, but the stated site duration remains forty days. The employee-day total alone does not cross the construction provision’s more-than-120-day test.
Illustrative example 6: A short earlier Indian year
Assume a covered continuous project from 15 March to 17 July 2026 inclusive: 125 days. Seventeen days fall up to 31 March and 108 from 1 April. The threshold period crosses two Indian taxable years. On the stated facts and assuming no other PE basis, the Protocol’s less-than-thirty-day rule prevents a deemed PE under this provision in the seventeen-day year; the total chronology still supports the threshold review for the other year.
Illustrative example 7: Exactly thirty days is not below thirty
Assume a covered continuous project from 2 March to 1 July 2026 inclusive: 122 days, split as thirty days to 31 March and 92 days from 1 April. The earlier year does not qualify for the Protocol’s less-than-thirty-day exception merely because it contains exactly thirty days. Determine the resulting year-specific PE and attribution conclusions separately.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Establish enterprise and treaty eligibility | Residence and Article 24 eligibility file as applicable |
| 2 | Classify the contracted activities | Actual deliverables and relevant Article 5/12 analysis |
| 3 | Evidence physical commencement and completion | Site records, mobilisation and handover documents |
| 4 | Identify other covered enterprise projects | Complete site/project register across contracts |
| 5 | Validate the counting method | Calendar chronology, supervision and reasoned overlap/continuity treatment |
| 6 | Test the rolling twelve-month threshold | Window schedule showing exactly 120 versus more than 120 |
| 7 | Split by the applicable taxable years | Jurisdiction-specific year definitions and day allocation |
| 8 | Apply the Protocol separately | Less-than-thirty-day conclusion without deleting chronology |
| 9 | Review other tax and PE issues | Other nexus, income character and withholding memorandum |
| 10 | Prepare the attribution and filing file | Article 7 working, expenses, domestic-law period mapping and returns |
Sixteen practitioner FAQs
1. Is the construction threshold ninety days?
Article 5(2)(k) uses more than 120 days. The service provision has different conditions and should not be substituted.
2. Does exactly 120 days satisfy the test?
No. The construction provision’s duration condition is more than 120 days.
3. Is the period measured only within one Indian financial year?
No. It is tested in any twelve-month period. Review windows that cross 31 March.
4. Does signing the contract necessarily start the count?
The technical explanation identifies physical commencement. Examine whether relevant physical work began, rather than relying on the signature alone.
5. Do separate contracts automatically receive separate allowances?
No. Review the treaty’s combined-site/project wording and the enterprise’s full covered activity series.
6. Are supervisory activities irrelevant to construction PE?
No. Connected supervisory activities are expressly included. Evidence their nature, connection and period.
7. Can employee-days replace site duration?
No. Headcount multiplied by attendance days is not automatically the duration of the covered site or project.
8. Should overlapping construction and supervision be added without adjustment?
Do not mechanically double count one calendar interval. Retain the actual chronology and a supported legal counting method.
9. Does a blank attendance day prove the site stopped existing?
Not by itself. Review project continuity and the actual interruption evidence rather than relying only on attendance records.
10. What is the Protocol’s separate year-level test?
Where the threshold period spans two taxable years, examine whether the covered activity in a year aggregates less than thirty days.
11. Does exactly thirty days receive that exception?
No. Thirty days is not less than thirty.
12. Are the shorter year’s days ignored for the overall threshold?
No. Keep the chronology intact and apply the year-level Protocol conclusion separately.
13. Does the Protocol create the same result for another treaty?
Not automatically. Read the actual treaty and protocol applicable to the enterprise and jurisdiction.
14. Does crossing the test tax the entire gross contract value at a fixed rate?
No. Determine PE period and business-profit attribution under Article 7 and applicable domestic law.
15. Does staying below the test prove there is no Indian tax exposure?
No. Other PE bases, income articles, domestic charges and withholding issues require their own factual review.
16. Does the 2025 Income-tax Act reset an ongoing project’s days?
No such reset follows from commencement. Preserve the treaty chronology and map each Indian tax year to its applicable domestic framework.
Conclusion
Maintain an enterprise-wide project chronology and separate the rolling threshold from the taxable-year exception. Complete the attribution analysis before translating a day count into any tax or filing conclusion.