Service Level Agreement (SLA) Drafting
A service level agreement puts numbers on a service, such as uptime and response time, and says what you get when a target is missed. We draft the SLA for your review, tie the service credits to Section 74 of the Indian Contract Act, 1872, and have it stamped before anyone signs.
What it is
A service level agreement (SLA) is a contract, or a schedule to a main contract, that defines how well a service must be delivered. It sets measurable targets and fixes the remedy when the provider falls short. Without numbers, “good service” is only an opinion.
No separate statute covers SLAs; the Indian Contract Act, 1872 does. Section 73 allows compensation for loss that arises naturally from a breach, but not for remote and indirect loss. Section 74 caps any pre-agreed sum at reasonable compensation not exceeding the amount named. Here is the catch: service credits must be drafted as a genuine pre-estimate of loss. Write them as a punishment and a court can cut them down.
Who it applies to
You sell IT, SaaS or support services
Software, hosting, helpdesk and managed IT providers whose clients want uptime and response times in writing.
You outsource a business function
Payroll, accounts, logistics, housekeeping, security or a call centre. The SLA defines “done on time” and lets you hold back payment fairly.
A large buyer hands you its SLA
A Gurugram SaaS startup signing up a bank, or a Faridabad job-worker supplying an OEM, often receives the buyer’s draft with uncapped credits. We review it and push back before you sign.
Why it matters
Replace arguments with a scorecard
Both sides read the same monthly report, and a missed target triggers an agreed credit instead of a phone fight.
Keep penalties enforceable
Courts cut down a sum that looks like a penalty. A credit linked to the real cost of downtime is easier to recover.
Protect your data and your exit
Section 8(2) of the Digital Personal Data Protection Act, 2023 lets a data fiduciary use a data processor only under a valid contract. The SLA can be that contract.
Documents required
About the parties
- Legal name, address, PAN and GSTIN of each party
- Name of the person signing and their authority
About the service
- Main services agreement, purchase order or proposal
- Scope of work and service hours
- Current performance data or monitoring reports
- Escalation contacts on both sides
For signing
- Board resolution authorising a director to sign, for a company
- E-stamp paper for the state where the SLA is signed
- Digital signature certificate (DSC) if you sign electronically
What a good SLA measures
| Clause | What it does | What to watch |
|---|---|---|
| Service description | Lists exactly what is covered and what is not | Price out-of-scope work separately |
| Availability or uptime | A percentage over a month, such as 99.5% | Exclude planned maintenance windows, notified in advance |
| Response and resolution times | Clock times for each priority level, P1 to P4 | Define who sets the priority and when the clock starts |
| Measurement and reporting | Names the tool and the monthly report | The client should be able to check the data |
| Service credits | A percentage of the monthly fee for each missed target | A genuine pre-estimate, capped, and stated as the sole or non-sole remedy |
| Limitation of liability | Caps total liability, often at fees paid over a period | Carve out data breach and confidentiality if you are the client |
| Data protection | Security, breach notice, deletion on exit | DPDP Act duties sit with the data fiduciary |
| Termination and exit | Rights to end for repeated failures; handover help | Return of data and a transition period |
| Disputes | Escalation, then arbitration or courts | Arbitration clause must be in writing, Section 7(3) of the 1996 Act |
How it works
Price the cost of a bad day
We read your main contract and ask one question: what does a day of failure cost you? It shapes the credits.
Draft the SLA for your review
We draft the SLA, with its service schedule, for your review and revise it after comments from the other side. Each party is free to take independent legal advice. Any legal notice for breach or court filing under the SLA must be signed by a practising advocate.
Line up GST and TDS with the credits
In practice, a missed target means a credit note. We make GST and TDS follow it, so nobody pays tax on money never received.
Stamp the paper, then sign
We arrange e-stamp paper before anyone signs; in Haryana it is generated against a GRN on the e-GRAS portal. Authorised signatories of both parties then sign.
Timelines
Stamp before or at signing
Section 17 of the Indian Stamp Act, 1899 requires every instrument chargeable with duty and executed in India to be stamped before or at the time of execution.
Report breaches in 72 hours
Under the DPDP Rules, 2025, notified on 13 November 2025, breach details go to the Data Protection Board within 72 hours. Most fiduciary duties apply 18 months after notification, so build the clause in now.
Review service levels at renewal
Revisit targets and credits at each renewal, so the SLA tracks the service you buy today.
What happens if service levels are missed
The next invoice shrinks
The agreed percentage is deducted from the next invoice. In Kailash Nath Associates v. DDA, (2015) 4 SCC 136, the Supreme Court said a genuine pre-estimate can be awarded in full.
Inflated credits get cut down
Under Section 74, the court awards only reasonable compensation up to the named sum. Proof of loss is excused only where loss is difficult or impossible to prove.
Repeated failure lets you walk away
A well-drafted SLA lets you terminate after, say, three missed months in a row, with handover help and your data returned.
Picture a Faridabad auto-parts maker that runs its ERP on a hosted server. The vendor promised “best efforts” support. Nothing more. The server goes down during month-end dispatch, and there is no credit or response time to point to. An SLA with a P1 response window and a credit for each hour of downtime would have settled it in one email.
Frequently asked questions
Is a service level agreement legally binding in India?
Yes. An SLA is a contract under the Indian Contract Act, 1872, so it binds the parties once they sign it with free consent and lawful consideration. It can be a standalone agreement or a schedule to a main services agreement. Courts enforce the service levels and credits as written, subject to Sections 73 and 74. Draft the numbers carefully and the SLA works for you in a dispute.
What is the difference between an SLA and a master services agreement?
The master services agreement (MSA) sets the legal terms: scope, fees, liability, confidentiality and termination. The SLA sets the performance terms: uptime, response times, reporting and service credits. A common set-up is one MSA with a separate SLA for each service, so targets can change without reopening the whole contract. With a single contract, we add the SLA as a schedule.
Are service credits a penalty under Indian law?
They can be, if they are set too high. Section 74 of the Indian Contract Act limits recovery to reasonable compensation not exceeding the amount named. In Kailash Nath Associates v. DDA (2015), the Supreme Court held that a genuine pre-estimate of damage is awarded, while a penalty is reduced. Link each credit to the real cost of the failure, cap the total, and the clause should stand.
What uptime should an SLA promise?
There is no legal minimum; it is a commercial choice. Common figures are 99.5% or 99.9% a month. At 99.5%, about 3.6 hours of downtime is allowed in a 30-day month; at 99.9%, about 43 minutes. Higher uptime costs more to deliver, so match the target to what the business needs. We help both sides pick a figure they can measure and keep.
Does an SLA need stamp duty?
Yes, if it is an instrument chargeable with duty in the state where it is signed. Section 17 of the Indian Stamp Act, 1899 requires stamping before or at execution, and Section 35 bars an unstamped instrument from evidence until duty and a penalty of up to ten times the deficit are paid. Rates differ between states, so we confirm the current rate before the e-stamp paper is bought.
How does the DPDP Act affect an SLA?
If the provider handles personal data for you, the SLA should be a valid processing contract. Section 8(2) of the Digital Personal Data Protection Act, 2023 allows a data fiduciary to engage a data processor only under a valid contract, and Section 8(1) keeps the fiduciary responsible. We add security duties, a 72-hour breach notice chain and deletion on exit. That keeps you ready as the DPDP Rules, 2025 phase in.
Is TDS deducted on payments under an SLA?
Usually yes. From 1 April 2026, Section 393 of the Income-tax Act, 2025 covers it. Fees for professional services carry 10% and fees for technical services 2%, once payments cross ₹50,000 in the year. Contract work carries 1% for individuals and HUFs and 2% for others, above ₹30,000 a contract or ₹1 lakh a year. We map each fee to the right entry, and our TDS return filing team can take it from there.
Can we sign an SLA electronically?
Yes. The Information Technology Act, 2000 recognises electronic signatures, and an SLA can be signed with a DSC or another electronic signature. Stamp duty still applies, so the e-stamp certificate is generated first and attached to the signed file. Keep the signed PDF and the stamp certificate together; that file is your evidence if a dispute arises.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
The only government cost is stamp duty on the SLA at the rate of the state where it is signed. No filing with the ROC or any other authority is needed for the SLA itself.
Ready to begin?
Send us your services contract and the targets you have in mind; we will turn them into an SLA both sides can measure.