Dividend Tax Rate Between India and South Africa Under DTAA

Quick answer: Under Article 10(2) of the India-South Africa DTAA, in force since 28 November 1997, dividends are taxed at a flat 10% withholding rate regardless of shareholding percentage, versus India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) — a 50% reduction. There is no shareholding-tier structure and no separate exempt category for dividends: every South African beneficial owner qualifies for the same 10% cap, subject to a valid Tax Residency Certificate from SARS and Form 41.

Key takeaways:

• Flat 10% DTAA dividend rate under Article 10(2) vs 20% domestic rate — a 50% reduction
• Applies uniformly regardless of the South African shareholder's ownership percentage; no tiers
• Treaty signed 4 December 1996, in force from 28 November 1997; 2013 Protocol changed only information exchange, not rates
• Requires a TRC from SARS plus electronically filed Form 41
• The MLI's Principal Purpose Test applies from 1 January 2023 (withholding taxes); there is no MFN clause in this treaty

Dividend Tax Rate Between India and South Africa

The India-South Africa DTAA caps the withholding tax on dividends paid between the two countries at 10% of the gross amount under Article 10(2), compared with India's domestic rate of 20%. This flat structure — with no distinction between portfolio and substantial shareholdings — makes the India-South Africa corridor one of the simplest in India's treaty network for dividend planning.

This reduced rate applies both to Indian companies paying dividends to South African shareholders and to South African companies distributing dividends to Indian residents. Since India abolished the Dividend Distribution Tax (DDT) from 1 April 2020, dividends are taxed directly in the shareholder's hands, so the 10% treaty cap applies straightforwardly to the withholding on every distribution.

The India-South Africa Double Taxation Avoidance Agreement (DTAA) was signed at New Delhi on 4 December 1996, together with a Protocol that forms an integral part of the Agreement, and entered into force on 28 November 1997 under Article 28, notified in India by GSR 198(E) dated 21 April 1998. The treaty follows the UN Model Tax Convention, which tends to preserve greater source-State taxing rights than the OECD Model — consistent with the bilateral relationship between two developing, BRICS-partner economies.

A Protocol amending the Agreement was signed at Pretoria on 26 July 2013 and entered into force on 26 November 2014 (notified by the CBDT vide Notification No. 10/2015 / S.O. 316(E) dated 2 February 2015, with retrospective effect from 26 November 2014). This 2013 Protocol replaced Article 25 (Exchange of Information) with the current OECD-standard text, extending information exchange to taxes of every kind and removing bank-secrecy as a ground to refuse information. It made no change to any withholding rate — the rates below have never been amended since 1996.

Both India and South Africa have ratified the Multilateral Instrument (MLI): India deposited its instrument on 25 June 2019 (in force 1 October 2019) and South Africa on 30 September 2022 (in force 1 January 2023). The India-South Africa DTAA is a matched Covered Tax Agreement, and the South African Revenue Service (SARS) has published a synthesised text of the treaty as modified by the MLI, with the Principal Purpose Test (PPT) taking effect for withholding taxes from 1 January 2023 and for other taxes from 1 July 2023. This treaty carries no most-favoured-nation (MFN) clause — unlike some of India's other treaties, no protocol grants an automatic reduction if India later agrees a lower rate with a third OECD country.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), dividends paid by an Indian company to a non-resident shareholder are subject to withholding tax at 20%, before surcharge and health & education cess. Adding the 4% cess brings the effective rate to about 20.8%, and for a foreign company with income above INR 10 crore the applicable surcharge takes it to roughly 21.84%.

DTAA Rate (With Treaty)

Article 10(2) caps India's withholding tax at 10% of the gross amount of the dividend, provided the South African recipient is the beneficial owner. This 10% ceiling is inclusive of surcharge and cess — nothing is added on top once the treaty rate applies. Unlike DTAAs that distinguish substantial corporate shareholders from portfolio investors (for example a 15%/25% split), the India-South Africa treaty applies the same 10% to every beneficial owner.

Effective Tax Savings

For a South African parent company receiving INR 2 crore in dividends from its Indian subsidiary: without the treaty, TDS at 20% is INR 40 lakh, leaving INR 1.60 crore. With the treaty (valid TRC and Form 41 on file), TDS at 10% is INR 20 lakh, leaving INR 1.80 crore — a saving of exactly INR 20 lakh on this distribution. The South African parent can then claim a foreign tax credit in South Africa for the Indian tax withheld, under South Africa's Section 6quat credit mechanism, eliminating double taxation on the same income.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

Article 10(2) limits the reduced rate to cases where the South African recipient is the beneficial owner of the dividend — someone with the unrestricted right to use and enjoy the income, not a nominee, agent, or conduit obligated to pass it on. Article 10(3) defines "dividends" broadly as income from shares or other rights participating in profits (not being debt-claims), plus income from other corporate rights taxed like share income under the law of the paying company's residence state.

Tax Residency

The recipient must be a tax resident of South Africa under Article 4 of the DTAA — for companies, generally incorporation in South Africa or place of effective management there. A valid TRC from SARS is the primary evidence of this status.

Anti-Abuse Rules: MLI PPT and Domestic GAAR

Because India and South Africa are a matched Covered Tax Agreement under the MLI, the Principal Purpose Test (PPT) applies: treaty benefits can be denied where obtaining the benefit was one of the principal purposes of an arrangement, unless granting the benefit would still be in accordance with the treaty's object and purpose. This sits alongside India's domestic General Anti-Avoidance Rules (GAAR), in force since April 2017, and Article 10(2)'s own beneficial-ownership requirement — three independent grounds on which a shell or conduit structure interposed in South Africa purely to access the 10% rate can be challenged. This treaty has no Limitation of Benefits article and no MFN clause of its own.

No Permanent Establishment Connection

Under Article 10(4), the 10% rate does not apply if the South African beneficial owner carries on business in India through a permanent establishment (or a fixed base for independent personal services) and the shareholding generating the dividend is effectively connected with it. In that case the dividend is instead taxed as business profits under Article 7, at the ordinary corporate rate of 35% for foreign companies.

Dividend-Specific Treaty Provisions Under Article 10

Article 10(1) confirms that South Africa may tax dividends paid to its own residents; Article 10(2) then caps India's source-State tax at 10% where the recipient is the beneficial owner. Article 10(4) is the PE exception described above, and Article 10(5) restricts the paying company's own State from imposing extra tax on dividends merely because the company derives profits or income from the other State — preventing indirect taxation of dividends paid to non-residents out of foreign profits.

Documentation Required to Claim the Reduced Rate

Indian payers may apply the 10% treaty rate to dividends paid to a South African resident only once the recipient has provided the documents below; without them, the payer must withhold at the full domestic rate.

Tax Residency Certificate (TRC)

The South African recipient must obtain a Tax Residency Certificate from the South African Revenue Service (SARS), generally through SARS eFiling, confirming South African tax residency for the relevant year. This is the foundational document required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC does not carry all prescribed particulars (name, status, nationality, South African tax reference number, and period of residential status), the recipient must also file Form 41 electronically. Since 1 October 2023, Form 41 must be filed on the Indian income-tax e-filing portal even by non-residents without an Indian PAN, through a dedicated non-PAN registration category. Treaty benefit at source is available only once the form is actually filed — it is not automatic on the strength of the TRC alone.

Self-Declaration and No-PE Confirmation

The South African recipient should provide a self-declaration confirming beneficial ownership of the income, that no permanent establishment or fixed base exists in India to which the income is attributable, and that the arrangement has genuine commercial substance rather than being structured principally to access the 10% rate.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), any person paying dividends to a non-resident must deduct tax at source at the time of credit or payment, whichever is earlier. The rate is 10% where the South African recipient's DTAA documentation is complete, or the domestic rate if it is not.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the payment to South Africa, the Indian payer must file Form 145 electronically. For remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must also issue Form 146, certifying the taxability of the payment, the applicable treaty article and rate, and that TDS has been correctly deducted.

Section 395(1): Lower or Nil Withholding Certificate

If the South African recipient's actual Indian tax liability is expected to be lower than the standard withholding, they — the payee, not the Indian payer — may apply to the Assessing Officer for a certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) authorising a lower or nil rate. The Indian payer's own route, where warranted, is an application under section 395(2) of the Income-tax Act, 2025 (section 195(2) and (3) of the Income-tax Act, 1961) asking the Assessing Officer to determine the proportion of the remittance chargeable to tax.

Practical Considerations

Because the India-South Africa treaty applies one flat rate with no shareholding tiers, disputes over dividend classification are less common here than under treaties with graduated rates. The two recurring risk areas are documentation timing — the TRC and Form 41 must be on file before the payment, not obtained retroactively — and beneficial-ownership scrutiny of holding structures where the immediate South African recipient is itself owned by a third-country entity with a less favourable (or no) treaty with India. Indian tax authorities have increasingly examined such multi-layered structures, and both the MLI's PPT and domestic GAAR give them tools to look through a conduit that lacks real economic substance.

Practical Example

Cape Holdings (Pty) Ltd, a South African company, holds 60% of an Indian manufacturing subsidiary. The subsidiary declares a dividend of INR 3 crore for the year.

• Without DTAA: TDS at 20% = INR 60 lakh; Cape Holdings receives INR 2.40 crore.
• With DTAA (valid TRC and Form 41): TDS at 10% = INR 30 lakh; Cape Holdings receives INR 2.70 crore.
• Saving: INR 30 lakh on this single distribution, which Cape Holdings can offset with a South African foreign tax credit for the Indian withholding actually suffered.

For the complete treaty overview, see our India-South Africa DTAA guide, or compare all four withholding categories on our withholding tax rates page. Our tax advisory team can help structure and document dividend flows to claim this treaty rate correctly.

Frequently Asked Questions

What is the dividend tax rate under the India-South Africa DTAA?

Under Article 10(2) of the India-South Africa DTAA, dividends are taxed at a flat 10% of the gross amount when the recipient is the beneficial owner, versus India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). There is no shareholding-tier structure.

Do I need a Tax Residency Certificate to claim the 10% rate?

Yes. The South African recipient must obtain a Tax Residency Certificate from the South African Revenue Service (SARS) and, unless the TRC already carries all prescribed details, file Form 41 electronically on the Indian e-filing portal before the dividend is paid.

Does the 10% rate apply to all South African shareholders equally?

Yes. Unlike many Indian DTAAs that differentiate substantial corporate holdings from portfolio stakes, Article 10(2) of the India-South Africa treaty applies the same 10% rate regardless of shareholding percentage, provided the recipient is the beneficial owner of the dividend and holds valid documentation before the payment is made.

What happens if the South African company has a PE in India?

Under Article 10(4), if the shareholding generating the dividend is effectively connected with a permanent establishment the South African company has in India, the 10% rate does not apply. The dividend is instead taxed as business profits under Article 7, generally at the 35% foreign-company corporate rate.

Does the MLI affect dividend taxation under this treaty?

Yes. India and South Africa are a matched Covered Tax Agreement, so the Multilateral Instrument's Principal Purpose Test applies from 1 January 2023 for withholding taxes. Treaty benefits can be denied where accessing the reduced rate was a principal purpose of an arrangement lacking genuine substance.

Is there a most-favoured-nation clause that could lower the rate further?

No. The India-South Africa DTAA contains no most-favoured-nation clause. The 10% rate on dividends is fixed by the treaty text itself and does not adjust automatically if India later agrees a lower dividend rate with a third country in a separate treaty.