United States

Software development is exempt under US-India treaty


In a recent decision, an Indian Income Tax Appellate Tribunal (the Tribunal) ruled that software development services provided by a U.S. resident to an Indian company constituted independent personal services under the terms of the U.S.–India Income Tax Treaty. Under Article 15 of the treaty, income from independent personal services earned by a U.S. resident but performed in India is generally exempt from tax in India unless the taxpayer has a fixed base, or is present, in India for more than 90 days.

In the case before the Tribunal, Susanto Purnamo, a resident of the United States doing business in India as a sole proprietor, performed software development services to an Indian company. An Indian income tax officer contended that this income was subject to tax in India, and that the treaty failed to exempt the income from Indian tax. The taxpayer successfully appealed to the Commissioner of Income-Tax (Appeals) and the Indian government appealed to the Tribunal.

In the Tribunal, the taxpayer argued that Article 15 of the treaty exempts his income from Indian tax. Article 15 defines independent personal services as “income derived by a person who is an individual or firm of individuals (other than a company) […] from the performance […] of professional services or other independent activities of a similar character.” The Tribunal reasoned that software development constitutes professional services, following a prior Tribunal ruling that professional services require predominantly intellectual skill, are dependent on individual characteristics of the person performing the service, and are based on specialized and advanced education and expertise. Since the taxpayer in this case is an individual, the Tribunal held that he met both of the necessary criteria for exemption from Indian tax under Article 15. The case provides clarity to taxpayers that income from the provision of software development services in India for less than 90 days is exempt under the treaty.


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