I am part of a software start-up in CA working with a softare contractor in India. On this forum and by others I am told that my company should not withhold the 30% NRA tax from the Indian contractor's income. What forms does the Indian contractor have to provide to be exempt from witholdings (W-8BEN or W-8EXP or W-8ECI or other) and do they file for ITIN (W7)?

The contractor will submit to YOU Form W-8BEN, citing the article of the U.S.-India Tax Treaty that exempts his income from U.S. taxation. YOU maintain this form on file for THREE years as justification to the IRS for NOT withholding this 30% tax. After three years, ask for a fresh Form W-8BEN.

The contractor has NO requirement for an ITIN unless he needs to file a return to recover taxes that were improperly-withheld. I do about 2-3 returns each year for overseas contractors who must get an ITIN to recover such withheld taxes.

Thanks so much for your response. As its an independent contractor, I believe it should be Article 15 as per this link: http://unclefed.com/ForTaxProfs/Treaties/india.pdf
Can you confirm?
W8-BEN also requires 'Explain the reasons the beneficial owner meets the terms of the treaty article'. Is this verbiage OK?
The beneficial owner meets the terms of the treaty article as a provider of independent personal software development services with sole base only in India and no physical presence in the United States during the contracting period.

Yes, Article 15 is the correct citation and yes, the verbiage is correct.

Thank you. One last bother, W-8BEN instructions says that to claim benefits of a tax treaty one must provide an ITIN. Should we disregard this, since we won't be withholding taxes? Or is it best to get an ITIN in case of an audit?

No ITIN is required if no taxes are going to be withheld.