By Dev Rao | Updated March 2026
Every rupee paid by an Indian company to a non-resident — whether as dividends, interest, royalties, or fees for technical services (FTS) — attracts withholding tax under Section 195 of the Income Tax Act. The domestic rate is 20% across all four categories. But India has signed Double Taxation Avoidance Agreements with over 95 countries, and these treaties routinely reduce withholding to 10-15%, sometimes as low as 5%. For a foreign company receiving INR 10 crore in royalties from its Indian subsidiary, the difference between 20% domestic and 10% treaty rate is INR 1 crore per year. Claiming DTAA benefits is not optional tax planning; it is a basic requirement for any cross-border structure involving India.
This guide provides the master WHT rate table for India's top 20 DTAA partners, the compliance requirements for claiming treaty rates (TRC, Form 10F, Form 15CA/15CB), and the impact of the Multilateral Instrument (MLI) on treaty benefits.
Quick Comparison Table
| Criterion | Indian Domestic WHT Rates | DTAA Treaty Rates (typical) |
|---|---|---|
| Dividends | 20% under Section 195 (plus surcharge + cess) | 5-15% depending on treaty and shareholding threshold |
| Interest | 20% on non-specified interest; 5% on foreign currency borrowings (Section 194LC) | 10-15% under most treaties; some as low as 5% for banks |
| Royalties | 20% under Section 195 | 10% under most modern treaties; 15-20% under older treaties |
| Fees for Technical Services (FTS) | 20% under Section 195 | 10% under most treaties; some treaties have no separate FTS article (e.g., Australia, UAE) |
| Surcharge on WHT | 2% (income INR 1-10 Cr) or 5% (above INR 10 Cr) for non-residents | Treaty rates are inclusive; no additional surcharge applies to treaty-capped rates |
| Cess | 4% Health & Education Cess on all WHT | Cess applies on top of treaty rates (debatable; CBDT clarification awaited on some treaties) |
| Effective Domestic Rate | 20.8% (with cess) to 21.84% (with surcharge + cess) | 10-15.6% effective (treaty rate + cess where applicable) |
| Compliance Burden | File Form 15CA/15CB, deduct at domestic rate | Obtain TRC, file Form 10F, Form 15CA/15CB, maintain documentation |
| Refund Process | Non-resident can claim refund of excess WHT via ITR filing | No refund needed if correct treaty rate applied at source |
Master WHT Rate Table: Top 20 DTAA Countries
The following table shows the maximum WHT rates under India's DTAAs with its 20 most significant treaty partners for foreign investment. Rates are as of March 2026, incorporating MLI modifications where notified.
| Country | Dividends | Interest | Royalties | FTS |
|---|---|---|---|---|
| United States | 15% / 25% | 10% / 15% | 10% / 15% | 10% / 15% |
| United Kingdom | 10% / 15% | 10% / 15% | 10% / 15% | 10% / 15% |
| Singapore | 10% / 15% | 10% / 15% | 10% | 10% |
| Japan | 10% | 10% | 10% | 10% |
| Germany | 10% | 10% | 10% | 10% |
| Netherlands | 10% | 10% | 10% | 10% |
| France | 10% | 10% | 10% | 10% |
| Australia | 15% | 15% | 10% / 15% | No separate article |
| Canada | 15% / 25% | 15% | 10% / 15% | 10% / 15% |
| South Korea | 15% | 10% | 10% | 10% |
| China | 10% | 10% | 10% | 10% |
| UAE | 10% | 5% / 12.5% | 10% | No separate article |
| Switzerland | 10% | 10% | 10% | 10% |
| Hong Kong | 5% | 10% | 10% | 10% |
| Malaysia | 5% | 10% | 10% | 10% |
| Sweden | 10% | 10% | 10% | 10% |
| Ireland | 10% | 10% | 10% | 10% |
| Israel | 10% | 10% | 10% | 10% |
| South Africa | 10% | 10% | 10% | 10% |
| Italy | 15% / 25% | 15% | 20% | 20% |
Reading dual rates: Where two rates appear (e.g., 15%/25%), the lower rate typically applies when the beneficial owner holds a specified minimum shareholding (often 10-25% of voting power), and the higher rate applies to portfolio investors. For interest, lower rates often apply to banks and financial institutions.
Standout Treaty Benefits
- Hong Kong and Malaysia: 5% dividend WHT — the lowest in India's treaty network. Ideal for holding company structures.
- Japan, Germany, Netherlands, France: Flat 10% across all four categories. Clean, simple, no conditions.
- UAE: 5% interest rate for banks — advantageous for debt-funded structures. No separate FTS article means FTS may be taxed as business profits (requires PE analysis).
- Italy: 20% on royalties and FTS — no treaty benefit over the domestic 20% rate. One of India's least favorable treaties for IP-heavy structures.
Compliance: How to Claim Treaty Rates
Claiming a DTAA rate is not automatic. The Indian payer must verify eligibility and maintain documentation. Missing any step means the domestic 20% rate applies, and the non-resident must file an Indian tax return to claim a refund — a process that takes 12-24 months.
Step-by-Step Compliance
- Obtain Tax Residency Certificate (TRC): The non-resident must obtain a TRC from the tax authority of their home country, confirming tax residency for the relevant financial year. Without a valid TRC, no treaty benefit is available.
- File Form 10F: The non-resident files Form 10F electronically on the Indian income tax portal (mandatory e-filing since July 16, 2022). Form 10F contains self-declaration of treaty eligibility, including status, nationality, tax identification number, and period of residency.
- Provide PAN or apply for PAN: A non-resident without a PAN faces WHT at 20% or the applicable rate, whichever is higher. Obtaining PAN before the first payment is advisable.
- Indian payer files Form 15CA/15CB: Before remitting payment, the Indian company files Form 15CA (online declaration of foreign remittance) and obtains Form 15CB (CA certificate confirming tax compliance and applicable rate) for payments exceeding INR 5 lakh.
- Deduct at treaty rate: With TRC, Form 10F, and PAN in place, the Indian payer deducts WHT at the applicable treaty rate instead of the domestic rate.
MLI Impact on India's Treaty Network
India deposited its instrument of ratification of the Multilateral Instrument (MLI) under the OECD/G20 BEPS framework on June 25, 2019; the MLI entered into force for India on October 1, 2019 and applies to most of India's treaties from April 1, 2020. India notified 93 of its bilateral tax treaties as Covered Tax Agreements, and each one is modified only once the partner country has also ratified the MLI — so the number of treaties actually altered has grown over time. The MLI adds anti-avoidance provisions:
Principal Purpose Test (PPT)
The PPT under Article 7 of the MLI allows India to deny treaty benefits if one of the principal purposes of an arrangement was to obtain a treaty benefit. The CBDT issued guidance in January 2025 clarifying that PPT applies prospectively from the date of entry into force of the MLI for each treaty. In August 2025, the Mumbai ITAT ruled that PPT provisions cannot be invoked without a specific notification formally incorporating them into the relevant treaty — a significant limitation on the tax department's ability to deny benefits.
Limitation of Benefits (LOB)
India adopted a simplified LOB clause under the MLI. The LOB tests whether the entity claiming treaty benefits has genuine economic substance in the treaty country. Key tests include:
- Qualified person test: Is the entity a listed company, government body, or individual?
- Active trade or business test: Does the entity conduct substantial business activity in the treaty country?
- Ownership and base erosion test: Is the entity owned by residents of the treaty country, and does it pay out most of its income to third-country residents?
Companies using Singapore or Netherlands holding structures to access India's favorable 10% treaty rates must demonstrate genuine substance in the intermediary jurisdiction.
Which Should You Choose?
Accept Domestic WHT Rates if:
- Your home country has no DTAA with India (e.g., certain African and South American jurisdictions)
- The domestic rate and treaty rate are the same (e.g., Italy's 20% royalty rate equals India's domestic rate)
- Obtaining TRC and filing Form 10F is impractical for small, one-off payments under INR 5 lakh
- Your home country provides full foreign tax credit, making the higher Indian WHT recoverable
Claim DTAA Treaty Rates if:
- Your home country has a DTAA with India offering rates below 20% (nearly all major economies)
- You receive recurring payments (dividends, royalties, FTS) exceeding INR 10 lakh annually
- Your entity has genuine substance in the treaty country and can pass PPT/LOB tests
- You have a valid TRC and can file Form 10F before the first payment
- Your structure involves IP licensing, technology transfers, or management fees — where royalty/FTS rates have the highest domestic-vs-treaty gap
Common Mistakes
- Applying treaty rates without a valid TRC for the correct year: A TRC from FY 2024-25 does not cover payments made in FY 2025-26. Each financial year requires a fresh TRC from the home country tax authority. Payments made with an expired TRC attract the full 20% domestic rate.
- Ignoring the FTS article gap: Some DTAAs (Australia, UAE, Saudi Arabia) have no separate FTS article. This does not mean FTS is tax-free. It means FTS is taxed as "business profits" under Article 7, which requires a Permanent Establishment in India. If there is no PE, FTS may be exempt — but this requires careful PE analysis, not a blanket assumption.
- Confusing gross vs net withholding: Indian WHT applies on the gross payment amount, not net-of-expenses. If an Indian subsidiary pays INR 1 crore in royalties, WHT is INR 10 lakh (at 10% treaty rate) on the full INR 1 crore — regardless of the non-resident's costs of generating the IP.
- Not filing Form 15CA/15CB for each remittance: Form 15CA must be filed before each foreign remittance exceeding INR 5 lakh, even if WHT has been deducted. Banks will not process the remittance without Form 15CA/15CB submission. Many foreign companies discover this at the wire transfer stage, causing payment delays.
- Assuming MLI automatically overwrites all treaties: The MLI modifies only those treaty provisions that both countries have agreed to modify. India's grandfathering of capital gains provisions in the Mauritius, Singapore, and Cyprus treaties (for pre-April 2017 investments) is preserved despite the MLI. Each treaty must be checked individually for MLI applicability.
Practical Example
Pinnacle Software Inc., a US company, licenses its SaaS platform to its Indian subsidiary, BeaconTech India Pvt Ltd. The annual royalty payment is INR 5 crore.
| Parameter | Without DTAA (Domestic Rate) | With India-US DTAA |
|---|---|---|
| Royalty Payment | INR 5,00,00,000 | INR 5,00,00,000 |
| Applicable WHT Rate | 20% | 15% (under India-US DTAA, Article 12) |
| Surcharge (5% on WHT, income > INR 10 Cr) | INR 5,00,000 | NIL (treaty rate is the ceiling) |
| Health & Education Cess (4%) | INR 4,20,000 | INR 3,00,000 |
| Total WHT Deducted | INR 1,09,20,000 (21.84%) | INR 78,00,000 (15.6%) |
| Net Received by Pinnacle | INR 3,90,80,000 | INR 4,22,00,000 |
| Annual Saving from DTAA | INR 31,20,000 per year | |
Compliance cost for claiming the treaty rate: TRC from IRS (free), Form 10F filing (15 minutes online), CA certificate for Form 15CB (INR 5,000-15,000 per remittance). For a INR 31.2 lakh annual saving, the compliance cost is negligible.
If Pinnacle had structured through a Japan or Germany entity instead, the royalty WHT would be 10% (INR 50 lakh + cess), saving an additional INR 25 lakh compared to the US treaty rate. Treaty rate optimization through holding structure design is a legitimate planning tool — provided the intermediary entity has genuine substance.
Key Takeaways
- India's domestic WHT rate is 20% (plus surcharge + 4% cess) on dividends, interest, royalties, and FTS paid to non-residents. Effective domestic rate ranges from 20.8% to 21.84%.
- DTAAs reduce WHT to 5-15% for most major economies. Japan, Germany, Netherlands, France, and Singapore offer 10% flat across all categories.
- Hong Kong and Malaysia offer the lowest dividend WHT at 5%. Italy is the least favorable major treaty at 20% on royalties and FTS.
- Claiming treaty rates requires a valid TRC for the relevant financial year, e-filed Form 10F, PAN for the non-resident, and Form 15CA/15CB for each remittance.
- The MLI (in force for India from October 2019, applying to treaties from April 2020) added the Principal Purpose Test and simplified LOB clause; India notified 93 treaties, each modified once the partner country also ratifies. Companies using intermediary holding structures must demonstrate genuine substance.
- The savings from treaty rates are substantial: on INR 5 crore in royalties, the difference between 20% domestic and 10% treaty rate is INR 50 lakh annually.
Need help structuring cross-border payments to minimize withholding tax? Beacon Filing provides cross-border payment advisory, including DTAA optimization, TRC/Form 10F compliance, and double taxation relief claims.