Consultancy and Retainer Agreements in India: The Five Clauses Templates Omit, With Wording

Consultants, advisers, fractional CFOs, designers and specialist contractors are engaged under agreements that are usually three pages copied from somewhere. The gaps show up at the first invoice (which TDS section? is GST included?), at the first deliverable (who owns it?) and, sometimes, years later (was this person really an employee?). This guide covers the five clauses that fix those gaps, with wording, and the execution steps. Position as of October 2026.

1. Scope that reads like a service, not a job

Define outputs, milestones and the consultant's discretion over method; avoid fixed hours, reporting lines and exclusivity. The Supreme Court's tests in Sushilaben Indravadan Gandhi v. New India Assurance (15 April 2020) weigh control, integration into the business and economic reality together; a consultancy agreement for someone who works your hours on your laptop under your manager will not change the answer.

"The Consultant will provide the Services described in Schedule 1 to the standard of a competent professional, determining the manner, time and place of performance, and may provide services to others provided no conflict arises with the Services."

2. Fees, invoicing and GST

State fees, the invoicing trigger, and that fees are exclusive of GST. A consultant whose aggregate turnover exceeds the registration threshold must charge GST; the client claims input credit on a compliant invoice, and must reverse it with interest if the invoice is unpaid for 180 days (second proviso to section 16(2), CGST Act, 2017).

"Fees are exclusive of GST, which the Consultant will charge at the applicable rate on a tax-compliant invoice. The Client will pay each undisputed invoice within [30] days of receipt."

3. TDS

Withholding on professional fees falls under section 194J of the Income-tax Act, 1961: 10% for professional services and 2% for technical services, with the annual threshold raised to Rs 50,000 from 1 April 2025. Say which the parties consider applicable and that the client will issue the certificate; no gross-up unless agreed.

"The Client will deduct tax at source under section 194J of the Income-tax Act, 1961 at the applicable rate and provide the Consultant with the TDS certificate. Fees are not grossed up for TDS."

4. MSE payment term

If the consultant is registered as a micro or small enterprise, section 15 of the MSMED Act, 2006 caps the agreed payment period at 45 days from acceptance; interest under section 16 accrues on delay; and since Assessment Year 2024-25 the client's deduction depends on timely payment under section 43B(h) of the Income-tax Act. Ask for the Udyam number at intake and reflect it.

"Where the Consultant is a micro or small enterprise under the MSMED Act, 2006, payment will be made within the period permitted by section 15 of that Act."

5. IP assignment and pre-existing materials

Deliverables should be assigned to the client in writing; the consultant's own tools and know-how are licensed, not assigned.

"The Consultant assigns to the Client all intellectual property in the Deliverables on creation, and waives any moral rights to the extent permitted by law. The Consultant retains its Pre-existing Materials and grants the Client a perpetual, non-exclusive licence to use them as part of the Deliverables."

Also include

• Confidentiality with survival; a data-processing clause if the consultant handles personal data (section 8(2), DPDP Act, 2023, from 13 May 2027).
• Term, termination on notice both ways, and payment for work done to termination.
• No post-term non-compete (void under section 27, Indian Contract Act, 1872); a narrow non-solicitation of clients worked with.
• Liability cap and professional indemnity insurance where the advice carries risk.
• Governing law and arbitration seat; place of execution.

Execution

Consultancy agreements can be e-signed (sections 5 and 10A, IT Act, 2000); stamp where the state schedule charges agreements. Track invoice dates, the 45-day MSE deadline, the 180-day GST rule, the term end and any retainer renewal in the obligation register.

Where Legatio fits. Legatio's consultancy template carries the five clauses, captures GST registration and MSE status at intake, executes electronically and tracks the payment and renewal dates. The fee and scope are your negotiation.

Position stated as of October 2026. General information, not legal or tax advice.