Dividend Tax Rate Between India and Turkey Under DTAA

Quick answer: Under the India-Turkey DTAA, dividends paid to a Turkish resident who is the beneficial owner are capped at 15% of the gross amount under Article 10(2) -- a single flat rate with no shareholding tiers -- against 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). The treaty was signed 31 January 1995 in New Delhi and entered into force on 1 February 1997, with retroactive effect in India for previous years beginning on or after 1 April 1994. Both countries signed the Multilateral Instrument (MLI) on 7 June 2017; India ratified it and listed this treaty as a Covered Tax Agreement, but Turkey has not yet deposited its instrument of ratification, so the MLI's Principal Purpose Test does not yet apply. Claiming the 15% rate requires a Tax Residency Certificate from the Gelir Idaresi Baskanligi (Turkish Revenue Administration) and Form 41 (formerly Form 10F).

Key takeaways:

• Flat 15% DTAA dividend rate vs 20% domestic rate under Article 10(2) -- no shareholding-percentage tiers
• Treaty signed 31 January 1995, in force from 1 February 1997
• Article 10(3) defines dividends broadly, expressly including income from an investment fund and an investment trust
• Requires a TRC from the Gelir Idaresi Baskanligi plus electronically filed Form 41
• Turkey has signed but not ratified the MLI, so the Principal Purpose Test does not yet apply to this treaty; India's domestic GAAR remains the operative anti-abuse safeguard

Dividend Tax Rate Between India and Turkey

The Double Taxation Avoidance Agreement (DTAA) between India and Turkey, signed on 31 January 1995 in New Delhi and in force from 1 February 1997, caps the withholding tax on cross-border dividends at 15% under Article 10 of the treaty. This is the only rate the article prescribes for dividends -- unlike several Indian treaties that split the rate by shareholding percentage, the India-Turkey DTAA applies a single flat 15% regardless of whether the Turkish recipient holds a small portfolio stake or a controlling interest in the Indian company.

Article 10(3) of the treaty defines "dividends" broadly: it covers income from shares, "jouissance" shares or rights, founders' shares and other profit-participating rights that are not debt-claims, along with income from other corporate rights taxed the same way as income from shares under the law of the paying company's resident state, and it expressly extends the term to include income derived from an investment fund and investment trust. That last limb is about distributions made by a fund or trust: it puts such a distribution inside Article 10, so an Indian resident receiving income from a Turkish investment fund is within the 15% cap, and the same applies in reverse. Several other Indian treaties leave that characterisation ambiguous.

For Turkish parent companies with Indian subsidiaries, and Indian residents holding shares in Turkish companies, understanding Article 10 is central to cross-border tax planning. The rate applies in both directions: an Indian company paying dividends to a Turkish shareholder withholds at 15% (subject to Indian documentation rules), and a Turkish company paying dividends to an Indian shareholder is capped at 15% Turkish withholding under the same article. For the treaty's full framework, see our India-Turkey DTAA complete guide.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under Indian domestic law, dividends paid to a non-resident shareholder are taxed at 20% (plus applicable surcharge and health & education cess) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). This domestic rate applies to all foreign shareholders unless a more beneficial treaty rate is available and properly claimed with documentation.

DTAA Rate (With Treaty)

Article 10(2) of the India-Turkey DTAA limits the source-state withholding tax to 15% of the gross amount of the dividend, provided the recipient is the beneficial owner. This is a 5-percentage-point saving over the 20% domestic rate -- a 25% reduction in the tax cost of the distribution.

Effective Tax Savings

For a Turkish company receiving INR 1 crore in dividends from its Indian subsidiary, the treaty saves INR 5 lakh in withholding tax: INR 15 lakh is withheld at the 15% treaty rate against INR 20 lakh at the 20% domestic rate, leaving the Turkish parent with INR 85 lakh instead of INR 80 lakh. The Turkish company can then claim relief in Turkey for the Indian tax withheld under Article 22 of the treaty, so the same dividend is not taxed in full a second time.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

Article 10(2) applies only where the Turkish 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 to a third party. A Turkish holding company inserted between an Indian subsidiary and an ultimate third-country parent, with no independent economic function, risks failing this test.

Tax Residency Requirement

The recipient must be a tax resident of Turkey under Article 4 of the DTAA -- for companies, this generally means incorporation or place of effective management in Turkey. The Turkish shareholder must obtain a Tax Residency Certificate (TRC) from the Gelir Idaresi Baskanligi (Turkish Revenue Administration), under the Ministry of Treasury and Finance, confirming residency for the relevant financial year.

Anti-Abuse Rules: MLI Signed But Not Ratified by Turkey

Both India and Turkey signed the Multilateral Instrument (MLI) on 7 June 2017. India deposited its instrument of ratification on 25 June 2019 (in force for India from 1 October 2019) and listed the India-Turkey DTAA as a Covered Tax Agreement. Turkey, however, has not yet deposited its own instrument of ratification, so the MLI -- including the Principal Purpose Test (PPT) -- does not currently modify this treaty. Until Turkey ratifies, the operative anti-abuse safeguards are the treaty's own beneficial-ownership requirement and India's domestic General Anti-Avoidance Rule (GAAR), which can override treaty benefits where an arrangement is an impermissible avoidance arrangement under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961). Once Turkey ratifies, the PPT will apply automatically to this Covered Tax Agreement without any need for a fresh bilateral negotiation.

No Permanent Establishment Connection

Under Article 10(5), where the Turkish beneficial owner carries on business in India through a permanent establishment and the shareholding generating the dividend is effectively connected with that PE, the 15% cap does not apply; the dividend income is instead taxed as business profits under Article 7 of the treaty. Unlike several of India's later treaties, Article 10(5) has no parallel limb for a fixed base used for independent personal services.

Dividend-Specific Treaty Provisions Under Article 10

Definition of Dividends (Article 10(3))

The treaty defines dividends as income from shares, "jouissance" shares or rights, founders' shares and other profit-participating rights that are not debt-claims, plus income from other corporate rights subjected to the same taxation treatment as income from shares under the domestic law of the paying company's resident state, and expressly states that the term includes income derived from an investment fund and investment trust. That last limb characterises a distribution made by a fund or trust as a dividend, so income an Indian resident derives from a Turkish investment fund falls under Article 10 rather than the residual Other Income article.

Article 10(1): Residence State Taxation

Dividends paid by a company resident in one Contracting State to a resident of the other may be taxed in that other (residence) State -- establishing the residence country's primary taxing right over the income.

Article 10(2): The 15% Rate Cap

The source State may also tax the dividend, but where the recipient is the beneficial owner, the tax charged shall not exceed 15% of the gross amount of the dividend. Unlike many modern Indian treaties, there is no lower tier for substantial shareholdings (such as 10% or more ownership) -- the same 15% ceiling applies to a one-share portfolio investor and a wholly owning parent alike.

Article 10(4): Branch Profits

Article 10(4) lets the State in which a permanent establishment is situated tax the remaining profits of that permanent establishment, after Article 7 tax, at the paragraph 2 rate of 15%. It is a permissive branch-profits right rather than an Indian charge in itself, since Indian domestic law imposes no separate branch-remittance tax.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

The Turkish shareholder must obtain a TRC from the Gelir Idaresi Baskanligi confirming Turkish tax residency for the relevant financial year -- 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 every prescribed detail -- name, status, nationality, Turkish tax identification number, period of residential status and address -- the Turkish recipient must also file Form 41 electronically on the Indian income tax e-filing portal. PAN is not mandatory for this filing; a dedicated non-PAN registration category exists on the portal.

Self-Declaration and No-PE Confirmation

A self-declaration confirming beneficial ownership of the dividend, and that no Indian permanent establishment holds the shares generating it, should accompany the TRC and Form 41. Treaty benefit at source is available only once this documentation is actually filed with the payer -- it is not automatic.

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 a Turkish resident an amount chargeable to tax in India must deduct tax at source at the time of credit or payment, whichever is earlier -- 15% with valid treaty documentation, or 20% under domestic law without it.

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

Before remitting the dividend, the Indian company must file Form 145 online. For remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must also certify Form 146, confirming the taxability of the payment, the treaty article relied on, and that TDS has been correctly deducted.

Lower Withholding Certificate (Section 395(1))

If the Turkish shareholder's actual tax liability is lower than the amount that would be withheld at 15%, they may apply to the Assessing Officer for a certificate authorising a lower or nil rate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961).

Practical Examples and Calculations

Example 1: Turkish Parent Receiving Dividends from an Indian Subsidiary

Anadolu Holding A.S., a Turkish company, holds 100% of Ganges Manufacturing Pvt Ltd, an Indian subsidiary. Ganges declares a dividend of INR 3 crore to Anadolu Holding.

• Without DTAA: TDS at 20% = INR 60 lakh. Anadolu Holding receives INR 2.40 crore.
• With DTAA: TDS at 15% = INR 45 lakh. Anadolu Holding receives INR 2.55 crore.
• Tax saving: INR 15 lakh on this single distribution.

Anadolu Holding then claims relief in Turkey under Article 22 of the treaty for the Indian tax withheld, so the same dividend is not taxed a second time in full in Turkey.

Example 2: Turkish Investment Fund Holding a Small Stake

An Istanbul-registered investment fund holds a 2% portfolio stake in an Indian listed company and receives INR 20 lakh in dividends for the year. Provided the fund is a resident of Turkey under Article 4 and the beneficial owner of the dividend, Article 10(2) gives it the same 15% cap as a controlling shareholder -- the article sets no minimum-holding threshold that would push a small stake to a higher rate. TDS at 15% = INR 3 lakh, against INR 4 lakh at the 20% domestic rate, a saving of INR 1 lakh.

For structuring inbound holdings from Turkey, our FDI advisory team helps optimise dividend flows within the treaty's beneficial-ownership requirements, and our guide to registering a company in India from Turkey covers entity choice from the outset.

Frequently Asked Questions

What is the dividend tax rate under the India-Turkey DTAA?

Under Article 10(2) of the India-Turkey DTAA, dividends paid to a beneficial owner resident in the other country are capped at 15% of the gross amount. This is a single flat rate with no shareholding-percentage tiers, compared to India's domestic withholding rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

Does the 15% rate depend on how much of the company the Turkish shareholder owns?

No. Unlike many Indian treaties that offer a lower rate for substantial shareholdings, Article 10(2) of the India-Turkey DTAA applies the same 15% cap regardless of the size of the shareholding, from a minority portfolio stake to a wholly owned subsidiary.

What documents does a Turkish shareholder need to claim the reduced rate?

A Tax Residency Certificate from the Gelir Idaresi Baskanligi (Turkish Revenue Administration), electronically filed Form 41 (formerly Form 10F) on the Indian income tax portal, and a self-declaration confirming beneficial ownership and the absence of an Indian permanent establishment holding the shares.

Does the MLI Principal Purpose Test apply to India-Turkey dividends?

Not yet. Both countries signed the MLI on 7 June 2017 and India has ratified it, listing this treaty as a Covered Tax Agreement, but Turkey has not deposited its instrument of ratification. Until it does, the PPT does not modify this treaty; India's domestic GAAR remains the applicable anti-abuse safeguard.

Are dividends from a Turkish investment fund covered by the 15% rate?

Both directions are covered, for different reasons. Income an Indian resident derives from a Turkish investment fund or investment trust is itself a dividend under Article 10(3), so the 15% cap applies to it. A Turkish fund receiving Indian dividends gets the same 15% cap under Article 10(2) provided it is a resident of Turkey under Article 4 and the beneficial owner, because the article sets no minimum-holding threshold.

What happens if the Turkish company has a permanent establishment in India?

If the shareholding generating the dividend is effectively connected with a permanent establishment the Turkish company has in India, Article 10's 15% cap does not apply. The dividend is instead taxed as business profits under Article 7 at the applicable corporate rate.