Export Service from India (SEZ) to USA

[Sai Prasad]

Does USA entity require to deduct WHT for services from India (SEZ)?

If yes, please confirm the rate at which it will be dedcuted.

[YAGAY andSUN]

When a USA entity avails services from an Indian supplier, including one located in a Special Economic Zone (SEZ), the question of Withholding Tax (WHT) arises under U.S. tax laws as well as the provisions of the India–U.S. Double Taxation Avoidance Agreement (DTAA).

From the Indian tax perspective, if the Indian SEZ unit is providing export of services, and the place of supply is outside India (i.e., the USA), the transaction qualifies as a zero-rated supply under Section 16 of the IGST Act, 2017, and is exempt from Indian GST. However, for withholding tax, the analysis shifts to the jurisdiction of the service recipient, i.e., the USA.

Under U.S. Internal Revenue Code, a foreign entity (Indian supplier) is generally subject to 30% withholding tax on U.S.-sourced income, unless reduced or exempt under a tax treaty. However, business profits arising from services are not subject to WHT in the U.S. unless the Indian supplier has a Permanent Establishment (PE) in the U.S. as per Article 7 of the India–U.S. DTAA.

Hence, if the Indian SEZ service provider does not have a PE in the USA, the USA entity is not required to deduct any WHT under U.S. law or the treaty. The services provided from India (SEZ) will generally be treated as foreign-sourced income, especially in cases like IT services, consultancy, or technical services performed entirely outside the U.S.

To claim treaty benefit, the Indian supplier may be asked to furnish Form W-8BEN-E to the U.S. entity, confirming non-U.S. status and absence of PE in the USA.

Conclusion:
The U.S. entity is not required to deduct withholding tax on payments to an Indian SEZ unit for services, provided the Indian entity does not have a Permanent Establishment in the U.S.. The applicable rate under the India–U.S. DTAA in such cases would be 0%, and the transaction remains tax neutral in the U.S. subject to proper treaty documentation.

[Harshaditya Kabra]

No, the USA entity does not need to deduct withholding tax (WHT) on services exported from Indias Special Economic Zone (SEZ) to the USA, provided:

1. The services are performed entirely in India (not in the USA)

2. The Indian SEZ unit has no Permanent Establishment (PE) in the USA

3. The services qualify as "business profits" under Article 7 of the India-US tax treaty

When these conditions are met, the services are considered foreign-sourced income from the US perspective and are exempt from US withholding tax.

AI Summary

USA entity not required to withhold tax on services from Indian SEZ unit under treaty provisions A discussion forum addressed whether a USA entity must deduct withholding tax on services from an Indian Special Economic Zone unit. Two respondents confirmed that no withholding tax is required under U.S. tax law and the India-U.S. Double Taxation Avoidance Agreement, provided the Indian entity has no Permanent Establishment in the USA and services are performed entirely in India. The applicable withholding tax rate is 0% for such business profits, with proper treaty documentation required through Form W-8BEN-E.