Most foreign companies assume that paying for software means owning it. For an employee in India that assumption is broadly right. For a contractor it is wrong, and the gap is usually found in diligence, when a buyer’s lawyer asks for the assignment and nobody has one.
Under Section 17 of the Copyright Act, 1957, an employer owns copyright in work created by an employee in the course of employment, unless the contract says otherwise. A contractor is different: the author keeps copyright unless there is a valid written assignment. Section 19 requires that assignment to be in writing, signed by the assignor, and to specify the rights, the period and the territory.
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Quick Summary
| Who created it | Default owner | What you need |
| Employee of your Indian subsidiary | The Indian company, under s.17(c) | Employment contract with an IP clause; then a company-to-parent assignment if the parent should hold it |
| Employee of an EOR | Depends on the EOR contract chain | Check the EOR’s own employment terms assign to it, and that it assigns onward to you |
| Independent contractor in India | The contractor | A written assignment under s.19 — signed, with rights, period and territory specified |
| Contractor billing through a company | That company | Assignment from the company, plus its own chain from its people |
💡 TaxKitab Tip Audit the chain, not the top of it. A foreign parent typically has an agreement with its Indian subsidiary, and assumes the subsidiary’s people are covered. Check each link: does the employment contract or contractor agreement assign IP to the Indian entity, and does the Indian entity then assign onward to the parent? One missing link anywhere breaks the chain, and the link that is usually missing is the contractor who worked for six months in year one and has since disappeared.
Employees: Section 17(c)
Where work is made in the course of employment under a contract of service, the employer is the first owner of the copyright, unless there is an agreement to the contrary.
So an Indian subsidiary employing developers owns the copyright in what they write, by default. That is the easy case, and it is why the subsidiary structure is cleaner for IP than contractor arrangements.
Two qualifications worth keeping in mind.
The employment contract should say so anyway. A default is not a document. An explicit IP clause removes argument, particularly for work done outside core duties or outside working hours.
The subsidiary owns it, not the parent. The Indian company is a separate legal person. If the parent is to hold the IP, there must be an assignment from the subsidiary to the parent — and that assignment is also a transfer pricing event, because IP transferred between associated enterprises has to be priced at arm’s length.
Contractors: The Default Goes the Other Way
This is where companies get caught.
A contractor works under a contract for service, not of service. Section 17 does not transfer ownership to the person paying. The author — the contractor — remains the first owner, and the client has at best an implied licence to use the work for the purpose it was commissioned for.
An implied licence is not ownership. It may not permit you to modify the code, to sublicense it, to transfer it in a sale, or to stop the contractor reusing it elsewhere. Each of those is a question a buyer’s lawyer will ask.
Whether someone is an employee or a contractor is decided on substance, not on the label in the agreement. Courts look at control and supervision, integration into the organisation, exclusivity, how payment is structured, and whether the person may delegate the work. A “contractor” who works full time under your direction on your systems may be found to be an employee — which has consequences well beyond copyright, as set out in contractor versus employee in India.
What a Valid Assignment Needs
Under Section 19 of the Copyright Act, 1957, an assignment must be:
- In writing
- Signed by the assignor — the person giving up the rights
- Specific about the rights assigned
- Specific about the duration
- Specific about the territory
A clause saying “all intellectual property created shall belong to the Company” is better than nothing and weaker than it looks, because it addresses none of duration, territory or the specific rights.
Monetary consideration is not strictly required for validity, but assignments supported by consideration and properly recited are harder to challenge.
Note also that copyright assignment does not automatically carry moral rights, which remain with the author under Indian law, and that an assignment of future work needs careful drafting to be effective.
The Three Chains to Check
Chain 1 — Subsidiary employees. Employment contract with IP clause → Indian company owns → assignment to parent if required, priced at arm’s length.
Chain 2 — Contractors. Written assignment under s.19 from each contractor → Indian company or parent. Including contractors who have left.
Chain 3 — EOR staff. The EOR is the employer, so the EOR owns by default. Its employment contracts must assign to it, and its agreement with you must assign onward. Read both; do not assume the EOR’s standard terms do this.
Where a contractor bills through their own company, the assignment must come from that company — and that company needs its own chain from the individuals who did the work.
When It Actually Matters
Diligence on a funding round or sale. The commonest moment. Buyers ask for the IP chain and an incomplete one becomes a price adjustment, an indemnity, or a condition to close.
A dispute with a former contractor. Who, holding copyright, has leverage you did not know you had given them.
Transfer pricing. Where IP sits determines where profits should. A group whose IP is owned by the Indian entity but whose transfer pricing treats that entity as a routine service provider has an inconsistency on file — see transfer pricing in practice.
Open source compliance. Separate from ownership but worth reviewing at the same time, since “what is in our codebase” is needed for both.
Fixing It Retrospectively
Possible, and easier the earlier you start.
For current people: issue a confirmatory assignment now, signed, specifying rights, period and territory, and recording consideration.
For leavers: contact them. Most sign without difficulty if asked reasonably and early. The ones who do not are exactly the ones whose work you most need assigned.
For anyone unreachable: document the attempt, assess what they contributed, and take advice on the exposure. A documented, bounded gap is far better in diligence than an unexamined one.
Do this before a transaction. During, it becomes a negotiating point for the other side.
Frequently Asked Questions
Our contract says all IP belongs to us. Is that enough? It is a start. Whether it meets Section 19 depends on whether it is signed by the assignor and specifies rights, duration and territory. Many standard clauses do not.
Does the India subsidiary owning the IP cause a problem? Not inherently, but it must be consistent with the transfer pricing position and with where the group says value is created. Moving it later is a priced transaction.
What about work made before the contract was signed? Not covered. A confirmatory assignment should expressly cover work from the start of the engagement.
Do we need to register the copyright? Not to own it — copyright arises on creation. Registration is evidentiary and can help in enforcement, and is worth considering for core assets.
Does this apply to designs, trade marks and patents too? Different statutes with different rules. Patents and designs have their own assignment and registration requirements. This post covers copyright, which is what software mostly is.
Can TaxKitab draft the assignment? We can tell you where the chain has gaps from the engagement records we hold. The assignment itself should be drafted by an Indian lawyer — it is a legal document and the Section 19 requirements are specific.
References
- Copyright Act, 1957 — Section 17 (first ownership, including s.17(c) on work made in the course of employment under a contract of service) and Sections 18 and 19 (assignment, requirement of writing and signature, specification of rights, duration and territory)
- Indian case law on contract of service versus contract for service, applying tests of control, integration, exclusivity, payment structure and delegation
⚠️ IP ownership and assignment are legal questions decided on the specific documents and facts. This is not legal advice — have your contracts and assignments reviewed by an Indian lawyer, particularly before any funding round or sale.
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