Section 09 — Section 195 core compliance engine
Royalty, technical service, or nothing at all. Decided in seconds, defended in citations.
Every rupee an Indian company pays a foreign supplier — an AI model API, a SaaS seat, an engineering consultant — has to be tested under section 195 before it leaves. This desk runs the three obligations end to end: chargeability, the residence-document pack, and the Form 15CA / 15CB filing with its reconciliation.
In plain words
Indian law says: before you pay a foreign supplier, work out whether India is owed tax on that payment, collect proof of where the supplier is taxed, hold back the right amount, and tell the tax department. Doing this by hand takes about 11 working days per invoice. Here it takes under two minutes, with the reason for every decision written down.
01 — Pick a live vendor payment
Invoice in rupees at ₹ 95.44 / USD
₹ 2,29,05,600
In plain words
These twelve switches are the facts a tax officer would ask about. Flip any one and watch the classification, the rate, the paperwork and the filing change with it — that is the whole assessment, made visible.
02 — Chargeability determination
Classification
Business income — not chargeable
Chargeable in India
No
Rate applied
0%
Engine confidence
80%
Not chargeable to tax in India — nil withholding, but the payer must record the reasoning and file Form 15CA Part D.
Payment is made by an Indian resident to a non-resident
s.195(1) read with s.5(2) and s.9(1) · Human desk
Yes
Withholding machinery is engaged; chargeability must be tested before remittance.
In plain words: Any money going from India to a foreign supplier has to be tested for Indian tax before it is sent.
Copyright in the work is transferred, or the payer may reproduce and exploit it
s.9(1)(vi) Expl. 2(v); Engineering Analysis Centre of Excellence (SC, 2021) · Qwen · reasoning
No
A mere copyrighted-article licence. The Supreme Court holds this is not royalty.
In plain words: Buying the right to copy and resell software is a royalty. Buying a licence to simply use it is not.
Payment is for the use of a patent, process, formula, trademark or know-how
s.9(1)(vi) Expl. 2(iii); Art. 12 of most DTAAs · Qwen · reasoning
No
No secret process or IP is placed at the payer's disposal.
In plain words: Paying to use someone's patented method or brand is a royalty.
Industrial, commercial or scientific equipment is placed at the payer's disposal
s.9(1)(vi) Expl. 2(iva) · Qwen · reasoning
No
Shared, elastic capacity with no dedicated hardware — not equipment royalty.
In plain words: Renting a specific machine or dedicated server is a royalty. Using shared cloud capacity is not.
Managerial, technical or consultancy services were rendered through human intervention
s.9(1)(vii) Expl. 2; Bharti Cellular (SC) · Qwen · reasoning
No
Automated, no human intervention — outside FTS.
In plain words: A service only counts as a technical service if real people did the work.
Technology is 'made available' — the payer can apply it independently afterwards
Art. 12(4)(b) India–US / India–Singapore / India–UK DTAA; De Beers (Kar HC) · Qwen · reasoning
No
Not made available — treaty FTS article is not attracted even if the Act is.
In plain words: If the supplier teaches you how to do it yourself, the treaty taxes it. If they just do it for you, usually it does not.
Standardised automated product supplied to a wide customer base
OECD Commentary Art. 12 paras 12–17; Engineering Analysis (SC) · LangChain · orchestration
Yes
Sale of a standardised product — points to business income.
In plain words: An off-the-shelf subscription that thousands of customers buy is usually just a purchase, not a royalty.
Vendor has a permanent establishment or business connection in India
Art. 5 DTAA; s.9(1)(i) · Alibaba Cloud · compute
No
No PE — business profits are taxable only in the vendor's home state.
In plain words: If the foreign company has an office or agent in India, India can tax its profits here.
Why this classification
Business income — not chargeable · decided at branch 4 of 4 · 5 of 12 facts could change it
Gross (after s.195A gross-up)
₹ 2,29,05,600
Tax withheld
₹ 0
Net paid to the vendor
₹ 2,29,05,600
RBI purpose code
S0801 — software / business services
In plain words
A subscription to a foreign AI tool is usually just a purchase, so no Indian tax is held back — but the moment source code, a secret method or dedicated hardware is involved, the same payment becomes a royalty taxed at source. The engine draws that line the way the Supreme Court drew it, and cites the case.
03 — Non-resident documentation tracker
Tax Residency Certificate
s.90(4) read with Rule 21AB
Valid · till 31 Mar 2027
Machine-read fields · Alibaba Cloud · compute
- Certifying authority — United States revenue authority
- Period certified — FY 2026-27
- Taxpayer identification — read from the certificate face
Issuing authority, period covered and the vendor's tax identification are matched against the invoice and the agreement.
In plain words: A letter from the vendor's own tax office proving they really are taxed there. Without it, treaty relief is not available.
Form 10F (e-filed on the income-tax portal)
Rule 21AB(1); CBDT Notification 03/2022 mandating electronic filing
Valid · till 31 Mar 2027
Machine-read fields · Alibaba Cloud · compute
- Acknowledgement number — captured from the portal receipt
- Status / nationality — Company · United States
- Address abroad — matched with the TRC
The e-filed acknowledgement is verified against the portal and the particulars are cross-read with the TRC. Paper Form 10F is refused.
In plain words: An online declaration filling the gaps the residency certificate leaves out. It must be filed electronically, not signed on paper.
No permanent establishment declaration
Art. 5 and Art. 7 of the applicable DTAA
Valid
Machine-read fields · Qwen · reasoning
- Declared PE in India — None
- Signatory — authorised officer of the vendor
Declaration is tested against the vendor's India footprint — group entities, dependent agents, service days.
In plain words: The vendor states in writing that it has no office or agent in India. If it does, India taxes its profits here instead.
Beneficial ownership declaration
Art. 12 DTAA; PPT under the MLI
Valid
Machine-read fields · LangChain · orchestration
- Beneficial owner — Frontier AI Labs Inc.
- Conduit test — no back-to-back onward payment declared
Screened for treaty shopping: onward flows, substance in the residence state and the principal-purpose test.
In plain words: Proof the vendor actually keeps the money, rather than passing it to someone in a country with no tax treaty.
Permanent Account Number of the non-resident
s.206AA; relief under Rule 37BC
Valid
Machine-read fields · Qwen · reasoning
- PAN furnished — No
- Rule 37BC relief — Available
Where PAN is absent, Rule 37BC relief is tested on the strength of the TRC, Form 10F, contact details and the tax identification number.
In plain words: Without an Indian tax number the rate jumps to 20% — unless the residence papers are complete.
Agreement, purchase order and invoice set
Rule 37BB read with s.195(6)
Valid · blocking
Machine-read fields · LangChain · orchestration
- Scope clause parsed — Metered API access to a hosted generative model, standard online terms
- Invoice ↔ agreement match — line items reconciled
- Currency and amount — USD 240,000
The scope clause is the source of the chargeability determination; the invoice must sit inside it.
In plain words: The contract and the bill must say the same thing. The contract's wording is what decides the tax.
Form 15CB — chartered accountant's certificate
Rule 37BB(2); s.195(6)
Valid · till date of remittance
Machine-read fields · Human desk
- Nature of remittance — Business income — not chargeable
- Rate certified — 0%
- Treaty article relied on — Art. 12
The certificate is generated from the same determination the engine produced, so the CA signs a document that already reconciles.
In plain words: A chartered accountant certifies the tax position before the bank is allowed to send the money.
In plain words
Treaty relief is not a claim, it is a file. If the residency certificate, the electronic Form 10F or the no-office declaration is missing or out of date on the day of payment, the cheaper treaty rate simply does not exist and the rate jumps. This tracker refuses to let the payment move until the file is whole.
04 — Form 15CA / 15CB generation and reconciliation
Form 15CA
Part D
Form 15CB certificate
Not required
Aggregate this FY
₹ 4,09,05,600
Reconciliation
4 sources agree
The sum is not chargeable to tax in India, so only Part D of Form 15CA is required. Rule 37BB(1) proviso; Part D of Form 15CA
| Field | Engine determination | Form 15CB | Form 15CA | AD bank advice | Match |
|---|---|---|---|---|---|
| Nature of remittance | Business income — not chargeable | Business income — not chargeable | Business income — not chargeable | Business income — not chargeable | matched |
| Purpose code (RBI) | S0801 — software / business services | S0801 — software / business services | S0801 — software / business services | S0801 — software / business services | matched |
| Gross amount (INR) | 22905600 | 22905600 | 22905600 | 22905600 | matched |
| Rate of withholding | 0.00% | 0.00% | 0.00% | 0.00% | matched |
| Tax deducted (INR) | 0 | 0 | 0 | 0 | matched |
| Treaty article relied on | Art. 12 DTAA | Art. 12 DTAA | Art. 12 DTAA | — | matched |
| Form 15CA part | Part D | not required | Part D | Part D | matched |
| Beneficiary and currency | Frontier AI Labs Inc. · USD | Frontier AI Labs Inc. · USD | Frontier AI Labs Inc. · USD | Frontier AI Labs Inc. · USD | matched |
In plain words
Form 15CB is the accountant's certificate and Form 15CA is the declaration the bank needs before it releases money abroad. Because both are produced from one determination, the certificate, the declaration, the bank advice and the quarterly TDS return can never quietly disagree — which is exactly the mismatch that triggers notices years later.
05 — The automation rail, replayed
Invoice and agreement ingested
+0s → +6s · LangChain · orchestration
running
In plain words: The system reads the bill and the contract instead of a person typing them in.
Chargeability determined against the rule tree
+5s → +16s · Qwen · reasoning
queued
In plain words: The engine decides whether Indian tax applies, and writes down the reason for each step.
TRC, Form 10F and No-PE pack validated
+12s → +26s · Alibaba Cloud · compute
queued
In plain words: The vendor's residency papers are checked, dated and matched to the invoice.
Rate selected: Act vs treaty vs s.206AA
+24s → +33s · Qwen · reasoning
queued
In plain words: It picks the lowest rate the law actually allows, and records why.
Form 15CB drafted for the chartered accountant
+32s → +45s · LangChain · orchestration
queued
In plain words: The accountant's certificate is pre-filled from the same determination, so nothing is retyped.
Chartered accountant signature (DSC)
+44s → +60s · Human desk
queued
In plain words: A human accountant signs, digitally, and the signature is stored with the file.
Form 15CA generated and filed on the portal
+58s → +70s · LangChain · orchestration
queued
In plain words: The declaration to the tax department is produced and filed automatically.
AD bank pack released with the acknowledgements
+68s → +79s · Federated ledger
queued
In plain words: The bank gets everything it needs in one bundle and can pay.
27Q, challan and ledger reconciled
+78s → +88s · Federated ledger
queued
In plain words: The tax paid, the quarterly return and the bank debit are matched so nothing can drift apart later.
Manual baseline per invoice
11 working days
On this rail
88 seconds
Cycle-time compression
3,600×
Human touchpoints left
0
In plain words
Nothing here removes the chartered accountant — it removes the retyping. The only human act left is the signature that the law actually reserves for a human, and it is captured with a digital signature and a UDIN so it can be proved later.
06 — How the section 195 workflow is built
Deterministic rule tree
Chargeability is decided by an ordered set of statutory tests, not by a model's opinion. The same facts always produce the same answer and the same citations.
Reasoning layer
Language models read the agreement, extract the scope clause and map it onto the tests. They propose facts; the rule tree decides law.
Document intelligence
TRC, Form 10F, No-PE and beneficial-ownership papers are parsed, dated, cross-matched and expiry-tracked in an India-resident region.
Sealed determination
Every determination is hashed with its inputs and committed to the federated ledger the regulators hold, so it can be re-proved years later.
invoice + agreement
│ document intelligence (extract scope, amount, currency, vendor)
▼
chargeability rule tree s.9(1)(vi) · s.9(1)(vii) · Art. 12 DTAA · Engineering Analysis (SC)
│ ├── Royalty / Equipment royalty
│ ├── Fee for Technical Services (make-available tested)
│ └── Business income — not chargeable
▼
rate selection s.115A vs treaty s.90(2) vs s.206AA / Rule 37BC
▼
document gate TRC (s.90(4)) · Form 10F (Rule 21AB, e-filed) · No-PE · BO declaration
│ blocking gaps hold the remittance
▼
filing engine Rule 37BB → 15CA Part A / B / C / D · 15CB draft → CA digital signature
▼
reconciliation determination ↔ 15CB ↔ 15CA ↔ AD bank advice ↔ 27Q ↔ challan
▼
ledger commit hashed determination sealed to every regulator nodeIn plain words
The law decides, the machine assembles. Models are used where judgement about words is needed — reading a contract — and never where the statute already gives a rule.
Qwen · reasoning
Statutory reasoning model reads the rule and the filing together, and writes the conclusion with the rule quoted.
LangChain · orchestration
Chains the retrieval, tool calls and checks in a fixed order so every filing is examined the same way.
Alibaba Cloud · compute
Runs the heavy document and screening workloads in an India-resident region.
Federated ledger
Each result is hash-chained into a block every regulator node holds a copy of.
Human desk
A named officer signs this off. The machine only prepares the file.