India–US DTAA Make-Available Test: Review Technical Deliverables, Training and Included-Service Fees

The supplier’s expertise is not the same as the customer’s acquired capability

A service is not an India–US Article 12(4)(b) included service merely because the US supplier uses advanced technology. The review asks whether technical knowledge, experience, skill, know-how or processes are made available to the recipient, or whether the service consists of development and transfer of a technical plan or technical design. Separately test Article 12(4)(a), which covers qualifying services ancillary and subsidiary to specified royalty rights/property, and then the paragraph 5 exclusions.

The conclusion must follow what is actually delivered and transferred. A clause saying “no technology transfer” does not override manuals, designs and demonstrated recipient capability; a label saying “technical support” does not establish capability transfer either. This guide addresses an eligible US enterprise’s service income and contracts reviewed as at 23 October 2026, not every country’s FTS clause.

Use the treaty, agreed MOU and current domestic framework

India–US DTAA Article 12 and the agreed Memorandum of Understanding distinguish technical or consultancy services from services satisfying the included-service conditions. The MOU explains that the recipient generally must be enabled to apply the technology; the supplier’s technical input and the use of a technology-containing product do not by themselves establish that result. The official IRS treaty publication includes the related instruments. The MOU is an agreed interpretive instrument; it should be read with the treaty rather than treated as a new charging provision.

For tax year 2026–27, the domestic starting points are sections 9(6), 9(7) and 159 of the Income-tax Act, 2025. The domestic FTS definition and source rule can be broader than this treaty’s included-services definition. Test the domestic charge, then an available more-beneficial treaty outcome under section 159(4), with residence, entitlement and anti-avoidance conditions. Section 159(8), Rule 75 and Form 41 address the current treaty-documentation framework; older Form 10F/section 90 labels need period-specific mapping.

Apply five contract questions in order

Question	What to examine	Evidence
Is it technical or consultancy service?	Actual service nature; not merely the invoice caption.	Scope, deliverables and personnel activities.
Does paragraph 4(a) apply?	Ancillary/subsidiary link to the enjoyment of Article 12(3) rights/property.	Licence/property agreement and predominant-purpose analysis.
Does paragraph 4(b) apply?	Transferred technical capability or development and transfer of a technical plan/design.	Manuals, implementation rights, designs, training and acceptance tests.
Does paragraph 5 exclude it?	Specific exclusions, including qualifying property-sale-linked services.	Sale/service interdependence and the exact exclusion conditions.
Which charging article and ceiling follow?	Residence/entitlement, beneficial ownership and any PE attribution.	Reasoned article selection and payment-compliance memo.

For capability transfer, identify what the Indian recipient can do after the service that it could not do before. Retain the technical content, permitted reuse, implementation rights and actual competence evidence. A deliverable report may contain only findings or commercial advice; another report may convey a reusable technical process. The file format or the presence of a training session is not decisive.

Development and transfer of a technical plan/design is an alternative within paragraph 4(b). Do not reject that limb solely because the recipient did not receive a classroom course. Equally, do not treat every routine drawing, generic template, software access right or business presentation as a transferred technical plan without examining its substance and the rights granted.

Separate genuine components without fragmenting an integrated service

A mixed contract may contain commercial research, technical transfer, royalty rights and separate support. A supported allocation requires distinct deliverables, contractual substance and a defensible price basis; an arbitrary invoice split is not enough. Integrated services should not be divided merely to reduce the apparent technical-transfer fee. Reconcile allocated amounts to the full consideration and test reimbursements on their facts.

Paragraph 5 contains specific exclusions for qualifying property-sale-linked services, certain international-transport equipment arrangements, teaching in/by educational institutions, personal-use services and specified employment/independent-professional payments. These are conditional categories, not blanket exclusions for all training, equipment work or individual consultants.

No make-available finding is not an automatic nil-withholding conclusion

A failed paragraph 4(b) test leaves paragraph 4(a), royalty classification, paragraph 5, PE/Article 7, other applicable articles and domestic chargeability to be resolved. Article 12(6) can move PE-attributable fees to Article 7. Under Article 12(2), the ordinary subsequent-year royalty/FIS ceiling in paragraph (a) is 15% of the gross amount, whereas the equipment-related category in paragraph (b) has a separate 10% ceiling. Do not apply a standard 10% to every US technical invoice.

Treaty eligibility includes Article 24 where applicable. The OECD BEPS MLI signatory list dated 15 September 2026 does not list the United States; do not automatically import an MLI-added principal-purpose clause into this bilateral treaty. That does not dispense with its existing limitation-on-benefits conditions or applicable domestic anti-avoidance law.

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: A technical diagnostic report without transferred capability

A US company charges ₹2,40,000 for 12 diagnostic runs at ₹20,000 each. Assume the customer receives fault findings only, no process, design, reuse rights or capability to perform the diagnostics; paragraph 4(a) is also assumed inapplicable. Technical effort alone does not satisfy paragraph 4(b) on those facts. The ₹2,40,000 still needs a complete income-article, PE and domestic-chargeability review; the example is not a nil-TDS certificate.

Illustrative example 2: An integrated process-transfer package

A contract charges ₹12 lakh for a reusable technical process manual, ₹3 lakh for applied staff instruction and ₹1 lakh for competence testing: total ₹16 lakh. Assume the package enables the Indian team to apply the process and no paragraph 5 exclusion applies. The substance supports paragraph 4(b) for the integrated ₹16 lakh package. Treating only the ₹3 lakh classroom component as FIS would ignore the transferred process and integrated scope.

Illustrative example 3: Transferred engineering design without classroom training

A US enterprise develops and transfers three implementation-ready technical designs at ₹3 lakh each: ₹9 lakh. Assume the deliverables and rights establish the development-and-transfer limb of paragraph 4(b), with no exclusion. A zero training fee does not remove that ₹9 lakh from the included-service analysis. Verify what was developed, transferred and usable rather than imposing an extra training requirement.

Illustrative example 4: A supported mixed-contract allocation

Separately contracted and genuinely independent deliverables are commercial market research ₹8 lakh, qualifying process-transfer training ₹4 lakh and non-technical administrative coordination ₹2 lakh: total ₹14 lakh. On the stated facts, ₹4 lakh meets paragraph 4(b); the other ₹10 lakh does not on that test. Examine paragraph 4(a), royalty/other articles and PE separately. Retain the allocation rationale; the same split is not justified where the components form one inseparable technical-transfer package.

Illustrative example 5: Royalty-linked support has a separate route

Assume an Article 12(3)(a) process licence costs ₹20 lakh and related technical support ₹4 lakh, total ₹24 lakh. The support is established as ancillary and subsidiary to enjoying that licensed process. Paragraph 4(a) can cover the ₹4 lakh even if paragraph 4(b) capability transfer is absent. Support is 4 ÷ 24 = 16.67% of the package, but that percentage is not a statutory safe harbour or the legal test; the actual relationship and predominant purpose matter.

Illustrative example 6: Property-sale-linked services need the exact exclusion

A machine is sold for ₹80 lakh with ₹4 lakh of installation services. Assume the sale is not a paragraph 3(a) transaction, and the services are ancillary/subsidiary as well as inextricably and essentially linked to that sale. Paragraph 5(a) excludes the qualifying ₹4 lakh from FIS despite a paragraph 4 issue. The service-to-machine price ratio is 5%, but that is not the exclusion test. Analyse separate income and PE consequences rather than calling the entire ₹84 lakh automatically tax-free.

Illustrative example 7: Use the right treaty ceiling for the assumed category

Assume ₹20 lakh gross fee is ordinary included-service income under Article 12(2)(a)(ii), with all treaty/residence/beneficial-ownership conditions met, no PE attribution, no equipment-linked category and no tax-net-of-fees gross-up. The 15% gross treaty ceiling amount is ₹3 lakh. Applying 10% would produce ₹2 lakh, a ₹1 lakh difference. This demonstrates the treaty ceiling, not a complete payment instruction: compare current domestic treatment, covered taxes and applicable compliance before finalising withholding.

Ten-step verification table

Step	Verification	Evidence to retain
1	Confirm the exact recipient and US treaty entitlement.	TRC, legal status and Article 24 analysis.
2	Read the full service/licence package.	Executed agreements, amendments and side letters.
3	Determine actual technical or consultancy content.	Activity records and deliverable descriptions.
4	Test royalty characterisation and paragraph 4(a).	Rights matrix and ancillary/subsidiary analysis.
5	Test recipient capability under paragraph 4(b).	Manuals, training, reuse rights and competence evidence.
6	Test development and transfer of technical plans/designs.	Design acceptance, implementation rights and version records.
7	Apply each relevant paragraph 5 exclusion precisely.	Exclusion-specific facts and documentation.
8	Validate allocations and total fee reconciliation.	Distinct scope, valuation basis and invoice bridge.
9	Review PE attribution and the correct rate category.	Article 12(6)/Article 7 memo and gross-fee basis.
10	Complete current-year documentation and withholding review.	Form 41 information and dated chargeability/compliance conclusion.

Sixteen practitioner FAQs

1. Does using sophisticated software make a service FIS?

Not by itself. Technical input used by the supplier is different from technical capability or a qualifying plan/design transferred to the recipient.

2. Does giving the customer a report always make technology available?

No. Examine whether it contains only results/commercial information or conveys usable technical knowledge, processes or a qualifying technical plan/design.

3. Does every training programme satisfy the test?

No. Subject matter, transferred capability and the paragraph 5 exclusions matter. A training label alone does not settle the treaty character.

4. Must a technical design be accompanied by training?

Paragraph 4(b) separately refers to development and transfer of a technical plan/design. Verify that limb without adding an automatic classroom condition.

5. Is a no-technology-transfer clause decisive?

No. It is evidence to compare with actual rights, deliverables and implementation. The conclusion must reflect contractual and commercial substance.

6. Can paragraph 4(a) apply when make available fails?

Yes. Qualifying ancillary/subsidiary services linked to the enjoyment of Article 12(3) rights/property are a separate route.

7. Are all equipment-service contracts taxed at 10%?

No. Article 12(2)(b) identifies a specific equipment-related category. Classify the payment and its actual relationship before choosing a ceiling.

8. What is the ordinary subsequent-year FIS ceiling in this treaty?

Article 12(2)(a)(ii) states 15% of the gross amount for its category, subject to the treaty conditions. Do not substitute another country’s treaty rate.

9. Does service delivery outside India remove Indian FIS tax?

Not automatically. The domestic source rule and treaty source/character provisions need examination; physical delivery and make available answer different questions.

10. If paragraph 4(b) fails, can withholding be skipped?

Not on that finding alone. Complete the remaining Article 12, PE, other-income-article and domestic-chargeability analysis and applicable payment compliance.

11. Can a contract be split based only on invoice headings?

No. The components and allocations need genuine independent substance and evidence. Integrated technical transfer cannot be fragmented arbitrarily.

12. Are reimbursements automatically outside the fee base?

No. Determine whether there is a genuine separate disbursement or consideration forming part of the service; retain supporting contractual and cost evidence.

13. Does machine installation always fall in paragraph 5(a)?

No. The specified sale and ancillary/subsidiary, inextricable and essential link conditions must be established; a standalone service can differ.

14. Does a US LLC automatically qualify as a treaty resident?

No. Examine the entity’s tax treatment, residence and treaty provisions. A US formation document or bank account alone is insufficient.

15. Does this treaty automatically contain the MLI PPT?

Do not assume that. The US is not listed in the cited OECD MLI signatory list; examine the existing Article 24 conditions and domestic anti-avoidance separately.

16. What should the final contract-review memo conclude?

State the domestic charge, treaty eligibility, exact Article 12 limb/exclusion, supporting deliverables, allocation, PE interaction, applicable ceiling and remaining compliance actions.

Conclusion

Make the deliverables and rights—not the invoice label—the centre of the treaty review. Test both paragraph 4 routes, the paragraph 5 exclusions and PE interaction before allocating the fee and selecting a treaty ceiling.