Tax on services delivered in India

Paul
I would ask the customer to validate their explanation by proving you with the specific code/section of the Indian law that applies, and then explore your options. There may be mis-interpretation.
Further, if there is such a provision, look for your client's rights to get proof of payment of the withholding tax as it may be required for US tax offset/relief.
And finally, examine your agreements to look for ways to protect margins/gross revenues, by explicitly addressing impact os such taxes.
Looks like specialist tax advice would be needed if the issue is material.
Regards
Len

We had a similar issue with two companies in India in that they wanted to withhold taxes. They worked with us to identify a process to avoid this that is similar to the process to avoid backup withholding in the U.S. See this document at this link: http://law.incometaxindia.gov.in/Directtaxlaws/cbdt/dta/A1_USA.htm

There is an agreement between India and the US to avoid this - India – United States of America Double Taxes Avoidance Agreement (DTAA)

The solution was slightly different for each. We sent the company a declaration we had no operations in India; a statement that our company was a tax resident of the USA; and then what was called an "Annexure document" that contained a statement like this:

We, xxxxx, permanent resident (not for profit corporation) of the United States of America hereby declare that we are a tax resident of the United States of America and our global income is subject to tax in the United States of America and accordingly we are subject to the provisions of India – United States of America Double Taxes Avoidance Agreement (DTAA).
I confirm that we do not having any fixed base/permanent establishment in India and accordingly we are not covered under any of the limbs of Article 5 of the aforementioned DTAA.