Under Income tax as per
explanation 2 to section 9(1)(vii), legal service is considered as fee for
technical service. 
Explanation 2 u/s 9(1)(vii) says
“fees for technical services” means any consideration (including any lump sum
consideration) for the rendering of any managerial, technical or consultancy
services (including the provision of services of technical or other personnel)
but does not include consideration for any construction, assembly, mining or
like project undertaken by the recipient or consideration which would be income
of the recipient chargeable under the head “Salaries”.
Legal fees is deemed to accrue or
arise in India, whether or not non-resident has place of business in India or
has rendered services in India. 
Explanation to section 9 says,
“For the removal of doubts, it is hereby declared that for the purposes of this
section, income of a non-resident shall be deemed to accrue or arise in India
under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be
included in the total income of the non-resident, whether or not,-

(i)   the non-resident has a
residence or place of business or business connection in India; or
(ii)  the non-resident has
rendered services in India.
TDS rate under IT Act is 25% [as
per section 115A(B)]. 
India has entered into tax treaty
with several countries which contain clauses for less withholding tax or no
withholding tax rate. Assessee has option to use lower withholding rate (lower
of IT rate or DTAA rate). 
Section 90(2) says “Where the
Central Government has entered into an agreement with the Government of any
country outside India or specified territory outside India, as the case may be,
under sub-section (1) for granting relief of tax, or as the case may be,
avoidance of double taxation, then, in relation to the assessee to whom such
agreement applies, the provisions of this Act shall apply to the extent they
are more beneficial to that assessee.”
To get the benefit of tax
treaties, non-resident has to share Tax Residency Certificate. Otherwise
normal IT rate shall apply. 
Section 90(4) says “An assessee,
not being a resident, to whom an agreement referred to in sub-section (1)
applies, shall not be entitled to claim any relief under such agreement unless
60b[A CERTIFICATE OF HIS BEING A RESIDENT] in any country outside India or
specified territory outside India, as the case may be, is obtained by him from
the Government of that country or specified territory.”
Further, besides having TRC,
non-resident should have PAN no. otherwise tax rate as per section 206AA will
apply. As this section contains non-obstante clause. 
Section 206AA(1) says,
“Notwithstanding anything contained in any other provisions of this Act, any
person entitled to receive any sum or income or amount, on which tax is
deductible under Chapter XVIIB (hereafter referred to as deductee) shall
furnish his Permanent Account Number to the person responsible for deducting
such tax (hereafter referred to as deductor), failing which tax shall be
deducted at the higher of the following rates, namely:-
(i)  at the rate specified
in the relevant provision of this Act; or
(ii)  at the rate or rates
in force; or
(iii) at the rate of twenty per
Lets understand with the help of
an example
Example 1 
Mr. X of USA/UK provided some
legal service from there only, to client in India. Now as per USA/UK treaties
with India, rate is NIL. 
Hence, Withholding tax rate will
·  If he has PAN & TRC, NIL tax. 
·   If he has PAN only, tax rate shall be as per IT Act
i.e. 25%. Since he can’t take benefit of tax treaty. 
·  If he has only TRC, tax rate shall be higher of 20%
or above 25%. 
Note : 25%
TDS rate shall be increased by applicable SC, EC & SHEC.

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