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Pilot project in India: from proof of concept to a paid contract with an Indian company

ATB Knowledge Series · 10 min read · Published October 2026

Short answer: A pilot project in India should be paid, short and tied in advance to the contract that follows: the roll-out price, scope and success criteria belong in the pilot agreement, not in a later negotiation. Because Indian companies pay suppliers against vendor registration and purchase orders, a paid pilot also gets you set up as a supplier, with your tax residency certificate and Form 41 on file, before the large order arrives [1]. Separate licence and service fees in the contract and on the invoice: under the tax treaties a standard software licence is generally not a royalty after the Supreme Court's 2021 Engineering Analysis ruling, implementation and training fees are usually fees for technical services withheld at the treaty rate, and a GST-registered Indian customer pays any GST under reverse charge [2][3][4][5].

Who this is for: Sales directors, CFOs and general counsel of Swedish, Finnish, German and other European industrial-software and technology companies running pilots with Indian manufacturers.

A pilot, or proof of concept, is a limited trial of your product on the customer's site and data, for a fixed period, against agreed success criteria.

Paid pilot Free pilot
Who signs up Customers with a budget and a sponsor Anyone curious
What it creates A purchase order, a vendor code and the tax paperwork A trial, often with no buyer behind it
Price anchor Set by the pilot fee None: your first quote looks like a premium
Your cost if no contract follows Partly recovered All yours
Use it when By default The customer's name is worth the cost as a reference, the scope is capped in weeks and a named budget holder signs the success criteria

The middle course works well in India: charge for the pilot and credit the fee against the first year if the customer signs within an agreed window. If you sell through an integrator that will run the pilot for you, check it first (finding and checking an Indian partner).

The pilot or proof of concept agreement: scope, success criteria and acceptance

  1. Scope. Which plant, lines and users; how long (usually eight to twelve weeks); what you deliver; and what the customer provides: data, system access, IT approvals and named staff.
  2. Baseline. Measure current performance before you start, so that results are not argued about later.
  3. Success criteria. Three to five measurable indicators, each with a threshold, a method and the person who measures it.
  4. Customer dependencies. If data or access arrives late, the pilot clock stops.
  5. Acceptance. A final test, with the pilot deemed accepted if the customer raises no written objection within a set number of days.
  6. Ending. On failure or expiry, you remove the software and the customer's data is returned or deleted.

The conversion clause: turning a pilot into a contract

The conversion clause is the part of the pilot agreement that says what happens when the success criteria are met.

Mechanism How it works Watch
Pre-agreed terms Roll-out price, scope and term attached to the pilot agreement A price-hold period, so the terms do not lapse during approvals
Customer option The customer may convert within a set number of days on those terms Say how it is exercised: a purchase order against the attached terms
Fee credit Pilot fee credited against year 1 if converted in time Cap the credit at the pilot fee
Site ladder Prices for the second and later plants agreed now Volume tiers, not open-ended discounts
Automatic conversion Contract starts unless the customer opts out Rarely paid in practice: Indian finance teams pay against a purchase order

If the customer would rather make your product locally than buy it, that is a licence, with different economics: see licensing your technology to an Indian company instead of investing.

Pricing for India

To sell products in India after a pilot, price on the value per plant that the pilot measured, not on your European list. Separate licence or subscription fees from implementation, training and support on both the contract and the invoice, because the customer's tax withholding differs between them. Invoice in euros where the customer accepts it, with annual indexation, and avoid pilot discounts that become the reference price for the whole group. For the wider European entry picture, see India for European companies: entry, structuring and the EU–India deal.

Selling in India: vendor onboarding, purchase orders and payment

  1. Vendor registration. Expect the customer's supplier form to ask for your tax residency certificate, the acknowledgement of your online Form 41, bank details, a declaration that you have no permanent establishment in India and a note on how each fee is taxed [1].
  2. Purchase order. Issued against the agreement. Make sure the order says the agreement prevails, because standard order terms often add liquidated damages, IP assignment or unlimited liability.
  3. Invoice. Matching the order line by line, with licence and service fees shown separately.
  4. The customer's bank. The customer files Form 145 before each payment and, once its payments to you exceed INR 5 lakh in the tax year, an accountant's certificate in Form 146 [6]. Under the RBI's 2026 export and import regulations, in force since 1 October 2026, the bank records the import of services, software included, and follows up payment within the period in your contract [7].
  5. Advances. The customer's bank may allow an advance for imported services; it may set a threshold above which it asks for a standby letter of credit or bank guarantee to cover the advance [7].
  6. GST. A GST-registered Indian customer pays IGST on your fees under reverse charge [5]. Keep its GST number on file: since the Finance Act 2023 an unregistered Indian business receiving online information and database access or retrieval services is a "non-taxable online recipient", outside reverse charge, and the foreign supplier must then register and pay the tax itself [5][8].

Public-sector buyers follow separate procurement rules: see selling to India's public sector as a European supplier

Tax on pilot, licence and service fees

Under Indian law the right to use software is a royalty, and royalties and technical fees paid to a foreign company bear 20% plus surcharge and cess [3][9][10]. Treaties narrow this. In Engineering Analysis the Supreme Court held that payments by Indian end-users and distributors to foreign software suppliers under licence or distribution agreements are not royalties under the treaties, so no tax had to be withheld [2]. The judgment concerned software licensed for use; it did not deal with fees for cloud services [2]. Implementation, configuration and training are usually fees for technical services, and the India–Sweden treaty allows India 10% on them, with a tax residency certificate and Form 41 [4][3][1]; other countries' rates are in India withholding tax rates 2026 and how to repatriate profits.

Engineers on the customer's site raise two separate questions: whether their visa covers the work (India business visa or employment visa) and whether long or repeated stays create a taxable presence (Permanent establishment in India (employees, EOR, agents)).

Protecting know-how, IP and data in a pilot

  • Know-how. Give access, not copies: no source code, no reverse engineering, named users, and return or deletion at the end. India's position on confidential information is in protecting trade secrets and know-how in India
  • Results. You keep your software and its improvements; the customer gets a licence to the reports and configurations made for it. Anything you develop jointly needs an ownership clause before work starts (joint development agreements in India).
  • Data. Machine data often comes with operators' personal data. Most of India's Digital Personal Data Protection Rules take effect eighteen months after their publication on 13 November 2025, so from May 2027 [11]; set processing terms in the pilot now.
  • AI pilots. If the customer's data will train or tune a model, say who may use the trained model afterwards (India's AI rules for foreign companies).

The EU–India free trade agreement, concluded in January 2026 but not yet signed or in force, includes rules protecting businesses from mandatory disclosure of software source code [12][13].

Worked example (illustrative)

Hypothetical; rounded exchange rates, October 2026: INR 107 = EUR 1. A Swedish industrial-software company runs a 12-week predictive-maintenance pilot on three lines of an Indian auto-components plant (see the Sweden–India corridor and software, IT and SaaS in India). The software runs on the plant's own servers under a non-exclusive end-user licence that gives no rights in the copyright. Prices, costs and the customer's decision are our assumptions; the plant is GST-registered, and the vendor gives the customer its Swedish tax residency certificate and files Form 41.

Pilot. Fee EUR 30,000 (INR 32.1 lakh), mostly configuration and training, so treated as fees for technical services: 10% withheld, EUR 3,000. The pre-agreed roll-out: a licence fee of EUR 120,000 a year for the three lines (INR 1.284 crore) and roll-out services EUR 40,000 (INR 42.8 lakh), with the pilot fee credited if the customer converts within 60 days. A free pilot would have cost the vendor about EUR 38,000 (INR 40.66 lakh) in engineers' time and travel, unrecovered if the customer did not convert.

Year 1 after conversion.

EUR Invoiced With certificate and Form 41 Without them (21.216%)
Licence fee, less pilot credit (120,000 − 30,000) 90,000 Nil: not a royalty under the treaty, on the reasoning in Engineering Analysis [2] 19,094
Roll-out services 40,000 4,000 (10%) 8,486
Total withheld 4,000 27,580
Cash received 130,000 126,000 102,420

Without the treaty documents the customer applies Indian law: 20% × 1.02 (surcharge, as year-1 fees of INR 1.391 crore exceed INR 1 crore) × 1.04 (cess) = 21.216% [9][10]. GST is the customer's under reverse charge, as the plant is GST-registered, and does not change these figures [5].

What the numbers show. - The paperwork is worth EUR 23,580 in year 1 (27,580 − 4,000), about 18% of year-1 billing. - Splitting the invoice matters: a single fee described as "implementation and licence" invites the customer to withhold on all of it. - The paid pilot recovered EUR 27,000 after withholding, about 70% of the EUR 38,000 the vendor would have sunk into a free one, and the fee then counted towards year 1.

Risks and common mistakes, ranked

  1. An open-ended free pilot with no success criteria or budget holder.
  2. No pre-agreed roll-out terms, so success starts a new negotiation.
  3. No tax residency certificate or Form 41 with the customer: domestic-rate withholding on every invoice.
  4. One undivided fee for licence and services.
  5. Purchase-order terms overriding the agreement: IP assignment, unlimited liability, liquidated damages.
  6. Engineers on site without a visa or day-count check.
  7. Source code, models or customer data leaving your control during the pilot.

Checklist to forward internally

  • Pilot paid, or free only with capped scope and a named budget holder
  • Scope, baseline, success criteria, dependencies and acceptance agreed
  • Roll-out price, scope, term and price-hold attached; conversion option and fee credit set
  • Licence and service fees separated in the contract and on invoices
  • Tax residency certificate and Form 41 sent to the customer before the first invoice
  • Vendor registration complete; purchase order says the agreement prevails
  • Payment period and any advance agreed with the customer and its bank
  • Engineers' visas and days in India checked
  • Confidentiality, results ownership, data processing and AI-model terms in the pilot agreement

How ATB Corporate can help

ATB Corporate advises companies and investors on entering, structuring and operating in India and the UAE: choosing the entry route and holding structure, tax and exchange-control planning, regulatory compliance, and setting up and running the local business. To discuss your plans, contact ATB Corporate.

FAQ

Should a pilot project in India be paid or free?

A pilot project in India should usually be paid, because a fee filters out customers without a budget, puts your company through the customer's vendor registration and sets a price anchor for the contract. A free pilot is worth it only when the customer's name has real reference value, the scope is capped in weeks and a budget holder signs the success criteria.

What should a proof of concept agreement include?

A proof of concept agreement should include the scope, the baseline, three to five measurable success criteria, the customer's dependencies, an acceptance test with deemed acceptance, confidentiality and ownership of results, data terms, and the pre-agreed terms for the contract that follows. Without the last item, a successful pilot only starts a new negotiation.

How do I turn a pilot into a paid contract with an Indian company?

The surest way to turn a pilot into a paid contract with an Indian company is to attach the roll-out price, scope and term to the pilot agreement and give the customer an option to convert within a set period, exercised by purchase order, with the pilot fee credited against year 1. Automatic conversion rarely works, because Indian finance teams pay against purchase orders.

Will my Indian customer withhold tax on software fees?

Your Indian customer should not withhold tax on fees for a standard software licence if you provide a tax residency certificate and Form 41, because the Supreme Court held in Engineering Analysis that payments for a licence to use software, which give no right in the copyright itself, are not royalties under the tax treaties [2][1]. The judgment did not deal with fees for cloud services. Implementation and training fees are usually fees for technical services, withheld at the treaty rate, which is 10% for a Swedish vendor [4].

Do I charge Indian GST on a paid pilot for an Indian company?

You do not charge Indian GST on a paid pilot supplied from abroad to a GST-registered Indian company, because the customer pays IGST on it under reverse charge [5]. If the customer is not GST-registered and the service is an online information and database access or retrieval service, the customer is a "non-taxable online recipient" and the tax falls on you instead [5][8].

Who owns the results of a pilot with an Indian company?

The pilot agreement should decide who owns the results of a pilot with an Indian company: normally you keep your software and every improvement to it, and the customer receives a licence to the reports and configurations made for it. Anything developed jointly needs an ownership clause before work starts.

Sources

  1. Income Tax Department, Income-tax Act 2025, s.159(4) and (8) (treaty relief where more beneficial; tax residency certificate and prescribed information) (2026) — https://www.incometaxindia.gov.in/w/section-159-89 ; Income Tax Department, Form 41 FAQs (online filing; acknowledgement; no PAN needed) (2026) — https://www.incometaxindia.gov.in/documents/d/guest/form-41-faqs (both accessed 16 October 2026)
  2. Supreme Court of India, Engineering Analysis Centre of Excellence Pvt Ltd v Commissioner of Income Tax, Civil Appeals 8733–8734 of 2018, paras 168–169 (2 March 2021) — https://api.sci.gov.in/supremecourt/2011/38137/38137_2011_33_1501_26629_Order_02-Mar-2021.pdf ; Supreme Court of India, order dismissing Review Petitions (C) 1422–1497 of 2021 (11 May 2026) — https://api.sci.gov.in/supremecourt/2021/21184/21184_2021_12_301_71066_Order_11-May-2026.pdf (both accessed 16 October 2026)
  3. Income Tax Department, Income-tax Act 2025, s.9 (s.9(6)(c): right to use computer software is royalty; s.9(7)(b): fees for technical services) (2026) — https://www.incometaxindia.gov.in/w/section-9-1 (accessed 16 October 2026)
  4. Income Tax Department, "Tax rates — DTAA v. Income-tax Act" (Sweden: royalties 10%, fees for technical services 10%) (2026) — https://www.incometaxindia.gov.in/w/%E2%80%8Btax-rates-dtaa-v.-income-tax-act (accessed 16 October 2026)
  5. GST Council, Notification No. 10/2017-Integrated Tax (Rate), Sl. No. 1 (services from a non-taxable territory: tax paid by the recipient), as amended up to 1 April 2019 (28 June 2017) — https://gstcouncil.gov.in/sites/default/files/2024-02/10-reverse_charge-igst-01.04.2019.pdf (accessed 16 October 2026)
  6. Income Tax Department, Income-tax Rules 2026, rule 220 (Forms 145 and 146; INR 5 lakh threshold) (2026) — https://www.incometaxindia.gov.in/w/rule-220-1 (accessed 16 October 2026)
  7. Reserve Bank of India, Foreign Exchange Management (Export and Import of Goods and Services) Regulations 2026, Notification FEMA 23(R)/2026-RB, regs 1(2), 2 (services include software), 9, 10(2)–(3) and 18(1)(d) (13 January 2026; in force 1 October 2026) — https://rbi.org.in/SCRIPTS/BS_FemaNotifications.aspx?Id=13277 ; amending Notification FEMA 23(R)/(1)/2026-RB (22 September 2026) — https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=13714 (both accessed 16 October 2026)
  8. Finance Act 2023 (Act 8 of 2023), s.160(a) (IGST Act s.2(16) substituted: "non-taxable online recipient" means any unregistered person receiving online information and database access or retrieval services in the taxable territory), GST Council copy (31 March 2023) — https://www.gstcouncil.gov.in/sites/default/files/2024-04/finance_act_of_2023.pdf ; Integrated Goods and Services Tax Act 2017, s.14(1)–(2) (supplier of such services liable; simplified registration), CBIC copy (12 April 2017) — https://cbic-gst.gov.in/aces/Documents/IGST-bill.pdf (both accessed 20 October 2026)
  9. Income Tax Department, Income-tax Act 2025, s.207(2) (royalty and fees for technical services of a foreign company at 20%) (2026) — https://www.incometaxindia.gov.in/w/section-207-78 (accessed 16 October 2026)
  10. Income Tax Department, First Schedule to the Finance Act 2026 (surcharge on foreign companies 2% above INR 1 crore, 5% above INR 10 crore) (2026) — https://www.incometaxindia.gov.in/w/first-schedule-104 ; Income Tax Department, "Foreign company" tax rates (health and education cess at 4%) — https://www.incometaxindia.gov.in/en/foreign-company (both accessed 16 October 2026)
  11. Ministry of Electronics and Information Technology, Digital Personal Data Protection Rules 2025, G.S.R. 846(E), rule 1 (rules 3, 5 to 16, 22 and 23 in force eighteen months after publication), Gazette of India copy (13 November 2025) — https://www.meity.gov.in/static/uploads/2025/11/53450e6e5dc0bfa85ebd78686cadad39.pdf (accessed 20 October 2026)
  12. European Commission (DG Trade), "EU–India agreements" (negotiations concluded 27 January 2026; proposals for signature and conclusion sent to the Council, 11 September 2026) — https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements_en (accessed 16 October 2026)
  13. European Commission (DG Trade), "EU–India free trade agreement: chapter-by-chapter summary" (digital trade: protection of software source code) (2026) — https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements/memo-eu-india-free-trade-agreement-chapter-chapter-summary_en (accessed 16 October 2026)

Disclaimer: This article is general information, not tax or legal advice; the worked example is hypothetical, and Indian tax, exchange-control and data rules change, so check the current rules and take advice on your facts before acting.

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