March 25, 2026 CA ALOK KUMAR Double Taxation

Double Taxation Avoidance Agreement (DTAA) between India and the U.S.

Overview and Purpose

The Convention between India and the United States for the Avoidance of Double Taxation and Prevention of Fiscal Evasion entered into force on 18 December 1990 and has been amended by subsequent protocols. It applies to persons (individuals, companies and other entities) who are residents of one or both countries. The agreement aims to allocate taxing rights between India and the U.S., prevent double taxation of the same income and combat tax evasion.

Taxes covered

The DTAA applies to the following taxes:

United States: Federal income tax (excluding accumulated earnings tax, personal holding company tax and social security taxes) and excise taxes on insurance premiums paid to foreign insurers.
India: Income‑tax (including surcharge) and surtax. The agreement also covers substantially similar taxes imposed after the treaty’s entry.

Key definitions (Article 3)

India – the territory of India, its territorial sea and any maritime zones where India exercises sovereign rights.
United States – all territory of the United States, including its territorial sea and seabed areas where U.S. tax laws apply.
Resident – any person liable to tax in a State by reason of domicile, residence, citizenship, place of management, or other criterion. For dual residents, the treaty uses “tie‑breaker” tests: permanent home, centre of vital interests, habitual abode and nationality.
Permanent establishment (PE) – a fixed place of business through which an enterprise carries on its business. The treaty lists examples such as branches, offices, factories, workshops, mines, warehouses, stores and farms. A building site or construction project constitutes a PE if it lasts more than 120 days, and the furnishing of services may constitute a PE if activities continue for over 90 days within any twelve‑month period. Certain activities of a preparatory or auxiliary nature do not create a PE.

Practical Provisions Relevant to NRIs and Cross‑Border Taxpayers

Business profits and PEs (Articles 7 and 14)

Business income of a resident enterprise is taxable only in the country of residence unless the enterprise carries on business in the other country through a permanent establishment. If there is a PE, only the profits attributable to that PE may be taxed in the source country.
Branch profits tax – the U.S. may impose a tax on the “dividend equivalent amount” of profits of an Indian company’s U.S. PE or on excess interest deductible in the U.S. beyond what is actually paid abroad. However, the tax rate cannot exceed the dividend and interest withholding rates prescribed in Articles 10 and 11.

Dividends (Article 10)

Dividends paid by a company resident in one country to a resident of the other country may be taxed in both countries. The source country (where the company is resident) may levy withholding tax but the rate is limited to:

Scenario	Maximum withholding rate
Beneficial owner is a company holding ≥10 % of the shares	15 % of gross dividend
All other cases	25 % of gross dividend
Dividends paid by a U.S. Real Estate Investment Trust	Only the 25 % rate applies unless the beneficiary is an individual holding <10 %

Tax withheld abroad may be claimed as a foreign tax credit in the residence country (see Article 25).

Interest (Article 11)

Interest paid in one country to a resident of the other may be taxed in both countries, but the source country’s withholding tax is capped at:

Type of interest	Maximum rate
Interest on loans granted by banks or similar financial institutions (including insurance companies)	10 % of gross interest
Other interest payments	15 % of gross interest

Interest paid to governments, central banks or approved government financing institutions (e.g., EXIM Bank) is exempt. The treaty deems interest to arise where the payer is a resident or where a PE bearing the interest is situated.

Royalties and fees for included services (Article 12)

“Royalties” include payments for the use of copyrights, patents, trademarks, designs, secret formulas and information concerning industrial or commercial experience. They also include payments for the use of industrial, commercial or scientific equipment.

“Fees for included services” cover technical or consultancy services that are ancillary and subsidiary to the licence of rights or make available technical knowledge, experience, skill or know‑how. Services such as teaching, personal services to individuals, or employment‑related services are excluded.

The withholding tax rates depend on the type of royalty/service and the period:

Scenario	Maximum rate payable to beneficial owner
Royalties for copyrights, patents, trademarks, etc. or fees for included services	15 % when the payer is the Government/public‑sector company; 20 % in other cases for the first five years; 15 % thereafter
Royalties for use of industrial, commercial or scientific equipment or fees incidental to such use	10 % of gross amount

Royalties and fees are taxable in the residence country as well, with a credit for tax paid abroad. If the services are effectively connected with a PE or fixed base in the source country, Article 7 or 15 applies.

Gains (Article 13)

Except for gains from ships or aircraft covered under Article 8, each country may tax capital gains under its domestic law. Thus, capital gains from sale of shares or property may be taxed in the country where the asset is located, subject to relief from double taxation under Article 25.

Independent and dependent personal services (Articles 15 & 16)

Independent personal services – Professionals (doctors, lawyers, accountants, etc.) resident in one country are taxable in the other country on fees for services performed there only if they have a fixed base regularly available or stay in that country for ≥90 days in a taxable year.
Dependent personal services – Salaries and wages of an employee resident in one country are taxable only in the country of residence unless the employment is exercised in the other country. Remuneration for work in the other country is exempt if the employee is present in the other country for ≤183 days, the employer is not a resident of that country and the remuneration is not borne by a PE or fixed base there.

Directors’ fees, entertainers and athletes (Articles 17 & 18)

Directors’ fees are taxable in the country where the company paying the fee is resident.
Entertainers and athletes – Income derived from personal activities may be taxed in the country of performance unless the net income does not exceed US$1,500 (or equivalent in INR). If income accrues to another person (e.g., a company), it may still be taxed in the country of performance.

Government remuneration and private pensions (Articles 19 & 20)

Government remuneration and pensions are generally taxable only in the paying State, with exceptions when the recipient is resident and national of the other State.
Private pensions and annuities are taxable only in the recipient’s country of residence. Alimony and child support payments are taxable only in the recipient’s State.

Students, apprentices, teachers and researchers (Articles 21 & 22)

Students and apprentices present in the other country principally for education or training are exempt from tax on payments arising outside that country. Teachers and research scholars visiting the other country for less than two years are exempted from tax on remuneration for teaching or research.

Other income (Article 23)

Income not covered by previous articles is taxable only in the residence State, except where it is attributable to a PE or fixed base in the other State.

Limitation on benefits (Article 24)

To prevent treaty shopping, corporate residents claiming treaty benefits must be beneficially owned (>50 %) by residents or citizens of India or the U.S., and their income must not be used substantially to meet liabilities to third‑country persons. Companies listed on recognised stock exchanges or carrying on an active trade or business are excepted. Competent authorities can grant benefits to others by agreement.

Elimination of double taxation (Article 25)

Both countries use the credit method. The U.S. allows residents/citizens a credit for Indian tax paid. India allows residents a deduction (as a credit against income tax) for U.S. tax paid, subject to a cap equal to the portion of Indian tax attributable to income taxed in the U.S.. For companies paying surtax, the credit is allowed first from income tax and then from surtax. Income is deemed to arise in the country where it may be taxed under the treaty.

Non‑discrimination (Article 26)

Nationals of one country shall not be subjected in the other country to taxes that are more burdensome than those on nationals in similar circumstances. PEs shall not be less favourably taxed than domestic enterprises.

Administrative provisions (Articles 27 – 30)

Mutual agreement procedure – Taxpayers who believe that actions of one or both states result in taxation not in accordance with the treaty may present their case to the competent authority of their country of residence within three years. Authorities shall endeavour to resolve cases by mutual agreement.
Exchange of information – Competent authorities will exchange such information as is necessary for administering taxes and preventing fraud or evasion. Information received is treated as secret and may be disclosed only to persons involved in tax administration.

Practical Guidance for NRIs and Businesses

Claiming treaty benefits

Determine residency – To claim DTAA benefits you must be a tax resident of India or the U.S. Obtain a Tax Residency Certificate (TRC) from the tax authorities of your resident country.
Provide documentation to payer – If you are a U.S. resident receiving income from India, provide the payer with a TRC and Form 10F (declaration of treaty‑relevant information). Indian payers may withhold tax at treaty rates after verifying these documents.
File returns and claim credit – Include foreign income and tax credit details when filing your income‑tax return. Indian residents must file Form 67 to claim credit for U.S. taxes; U.S. residents use Form 1116. Maintain evidence of tax paid abroad.
Monitor PE thresholds – Businesses should track days spent in the other country to ensure they do not inadvertently create a PE (120‑day rule for construction projects and 90‑day rule for services). Exceeding these thresholds could subject profits to tax in that country.
Assess income type – Identify whether your income is interest, royalties, fees for included services, capital gains, salary, etc., because different articles and withholding rates apply.
Review Limitation on Benefits (LOB) tests – Companies seeking treaty benefits must meet ownership and activity criteria. Ensure corporate structures are compliant to avoid denial of benefits.

Common situations

Interest from Indian deposits held by U.S. residents: subject to 15 % withholding (10 % if paid by a bank) and reportable in the U.S.; credit available under Article 25.
Fees for technical services provided by a U.S. consultant to an Indian company: taxed in India at 15 % or 20 % (depending on payor) for the first five years and 15 % thereafter. If the services make available know‑how or are ancillary to licensed rights, they fall within Article 12; otherwise they may be taxed as business profits or independent services.
Salary earned by an NRI while working remotely for a U.S. employer: remains taxable in India if the employment is exercised in India; the U.S. will also tax its citizens. Credit for taxes paid is available. Short assignments (≤183 days) may escape Indian tax if paid by a non‑resident employer and not borne by a PE.
Capital gains from sale of shares of an Indian company by a U.S. resident: taxable in India under domestic law because Article 13 allows each State to tax gains; U.S. residents may claim credit for Indian tax paid.

Distinction from FATCA / IGA

The 2015 Agreement to Improve International Tax Compliance and to Implement FATCA (Inter‑governmental Agreement) is separate from the DTAA. It focuses on automatic exchange of information on financial accounts to ensure tax compliance and does not provide relief from double taxation. Under the IGA, financial institutions must report specified accounts, and India receives information on accounts held by Indian residents in the U.S. and vice versa. Taxpayers should comply with both FATCA and DTAA obligations.

Summary

The India–U.S. DTAA provides a comprehensive framework for dividing taxing rights and preventing double taxation. It defines residency, permanent establishment thresholds, and sets maximum withholding tax rates for dividends, interest, royalties and fees for included services. It also addresses taxation of employment income, pensions, capital gains and other incomes, includes limitation‑on‑benefits provisions, and provides mechanisms for relief from double taxation and exchange of information. NRIs and businesses engaged in cross‑border transactions should understand these provisions, maintain proper documentation, and comply with procedural requirements to fully benefit from the treaty.

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CA Alok Kumar

US India Tax Treaty – DTAA Between India and USA: Complete Guide for NRIs, Investors and Taxpayers