India-Bangladesh DTAA: Complete Guide to the Double Taxation Avoidance Agreement

Quick answer: The India-Bangladesh DTAA caps dividends at 10% (10%+ direct capital holding) or 15% (all other cases), interest at 10% (with government and central-bank interest exempt), and royalties at 10%. There is no fees-for-technical-services article at all — cross-border service fees are taxed as ordinary business profits under Article 7 and reach India only through a permanent establishment. Signed on 27 August 1991 and in force from 27 May 1992, the treaty uses article numbering shifted by one from the usual Indian layout, and Bangladesh has never signed the Multilateral Instrument (MLI).

Key takeaways:

• Dividends: 10% (10%+ direct capital holding) or 15% (other cases) — Article 11(2)
• Interest: 10% flat, with government and central-bank interest exempt — Article 12
• Royalties: 10% — Article 13; but there is no separate FTS article, so pure service fees need a PE to be taxed in India
• Capital gains on shares of an Indian company are taxed exclusively by India, with no land-rich test or shareholding threshold — Article 14
• Bangladesh has never signed the MLI; anti-abuse relies entirely on India's domestic GAAR

Overview of the India-Bangladesh DTAA and Its Shifted Article Numbering

The Double Taxation Avoidance Agreement (DTAA) between India and Bangladesh is a bilateral tax treaty that allocates taxing rights between the two countries and relieves the same income from being taxed twice. It covers only taxes on income — Bangladesh's income-tax and India's income-tax (including surcharge) and the now-defunct surtax — with no capital or wealth-tax article.

The single most important thing to know before reading this treaty article-by-article is that its numbering is shifted by one from the layout used in most Indian treaties. Air Transport (Article 8) and Shipping (Article 9) each get a separate article, and Associated Enterprises sits at Article 10. Everything downstream follows one number higher than usual: dividends are in Article 11, interest in Article 12, royalties in Article 13, capital gains in Article 14, and independent personal services in Article 15. A carve-out you will see repeatedly — effectively-connected income routed to "Article 7 or Article 15" — refers to independent personal services, not capital gains.

Treaty History and Current Status

The India-Bangladesh DTAA was signed at New Delhi on 27 August 1991 and entered into force on 27 May 1992, notified in India by GSR 758(E), dated 8 September 1992. It has effect in India for years of assessment beginning on or after 1 April 1993 (Bangladesh applies it from 1 July 1993, reflecting its own fiscal-year start). The Convention is done in Hindi, Bengali and English, with English prevailing on divergence.

The treaty has been amended exactly once: a Protocol signed at Dhaka on 16 February 2013, in force from 13 June 2013. The Protocol touched only two articles — Students and Exchange of Information — and changed no rate, no PE threshold and no capital-gains rule.

India notified this Convention under the OECD's MLI, listing several provisions for potential modification. Bangladesh, however, has never signed the MLI at all. Because a treaty is modified by the MLI only when both parties are signatories, every one of India's notifications is inert: no MLI Principal Purpose Test, no replacement of the Article 4(3) tie-breaker, and no anti-fragmentation overlay. Anti-abuse scrutiny of this treaty runs entirely through India's domestic law.

The treaty follows a Hybrid model — an early-1990s OECD spine with UN Model and Indian-treaty features: a warehouse listed as a PE, a preparatory/auxiliary carve-out omitting "delivery", a group-extended agency clause, an entertainer/athlete deemed PE, source-state taxation of private pensions, and — most distinctively — no FTS article and no services-PE clause at all.

Who the Treaty Covers: Residence and the Dual-Resident Tie-Breaker

Article 1 applies the Convention to residents of one or both Contracting States, and Article 4(1) defines residence by each country's own domestic law. For dual-resident individuals, Article 4(2) applies the familiar cascading test: permanent home, centre of vital interests, habitual abode, nationality, and finally mutual agreement. For a company or other non-individual dual resident, Article 4(3) still uses the original place of effective management test, with no MAP-by-agreement replacement, since the MLI never touches this Convention.

Permanent Establishment Rules — Article 5

Article 5(1) defines a permanent establishment (PE) using the older formula — a fixed place of business "in which" (not "through which") business is wholly or partly carried on. Article 5(2) lists places of management, branches, offices, factories, workshops, a warehouse, mines and quarries, plus a building site or construction or assembly project "or the like" existing for more than 183 days — a day-count, with no installation or supervisory-activities limb.

No Services PE, and Agency PE

Unlike many of India's more recent treaties, this Convention has no services PE clause — no 90-day or 183-day test for furnishing services through personnel; such services reach India only through an ordinary fixed-place or agency PE. Article 5(3) excludes facilities or stock held solely for "storage or display" from PE status, notably omitting "delivery", so a delivery warehouse is not sheltered. Article 5(4) creates an agency PE through a dependent person with a general authority to conclude contracts, one who regularly delivers goods from a maintained stock, or one who habitually secures orders for the enterprise "or for the enterprise or other enterprises which are controlled by it or have controlling interest in it" — a group extension not found in every Indian treaty. Article 5(7) separately deems a PE wherever an enterprise provides the services of public entertainers or athletes, unless the visit falls within an agreed cultural or sports exchange programme.

Business Profits — Article 7

Business profits of an enterprise of one Contracting State are taxable only in that State unless it carries on business in the other State through a PE, in which case only the profits attributable to that PE are taxable there, computed as if it were a distinct and independent enterprise. This article does the heavy lifting for cross-border services under this treaty, precisely because there is no FTS article to do it instead.

Dividends — Article 11

Article 11(2) sets two tiers: 10% of the gross dividend where the beneficial owner is a company that holds directly at least 10 per cent of the capital of the paying company (Article 11(2)(a)) — the test is capital, and the threshold is 10%, not the 25% seen in some other Indian treaties — and 15% "in all other cases" (Article 11(2)(b)). Both sit below India's 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Where the shareholding is effectively connected with a PE or fixed base of the beneficial owner, Article 11(4) routes the income to Article 7 or Article 15, taxed on a net basis rather than by gross withholding.

Interest — Article 12

Article 12(2) caps interest at a flat 10% — a single cap, with no separate bank or financial-institution tier. Article 12(3) exempts interest paid to two named public bodies only: interest arising in India and paid to the Government of Bangladesh or the Bangladesh Bank is exempt from Indian tax (12(3)(a)), and the mirror exemption applies to interest arising in Bangladesh paid to the Government of India or the Reserve Bank of India (12(3)(b)). The closing sentence allows the competent authorities to agree further institutions, but no such agreement was independently verified — do not assume any additional institution is covered, and do not import a bank or export-credit exemption structure from another treaty. Interest connected with a PE or fixed base loses both the 10% cap and the Article 12(3) exemptions, falling to Article 7 or Article 15.

Royalties — and the Missing FTS Article

Article 13(2) caps royalty withholding at 10%, and Article 13(3) defines royalties broadly — copyright of literary, artistic or scientific work (including films and broadcast tapes), patents, trademarks, designs, secret processes, and, importantly, "the use of, or the right to use, industrial, commercial, or scientific equipment" and "information concerning industrial, commercial or scientific experience". That last limb means equipment hire and know-how payments are taxed as royalties at 10%, even though the Convention does not tax services as such.

For a full article-by-article rate breakdown, including worked examples, see our dedicated withholding tax rates page for India to Bangladesh.

The phrase "fees for technical services" appears nowhere in the Convention or the Protocol — no Article 12A, no combined royalty/FTS article, no make-available clause. Cross-border service fees are instead taxed, in order: first as a royalty under Article 13(3) if the payment is for equipment use or technical know-how; failing that, as business profits under Article 7, taxable in India only if attributable to a PE; and for individuals, under Article 15. Article 24, "Income Not Expressly Mentioned", reinforces this by preserving each country's own domestic law for anything the Convention does not expressly address — the opposite of the OECD's residence-only "other income" article.

Independent Personal Services — Article 15

Income of an individual from professional services is taxable only in the individual's residence State, unless they have a fixed base regularly available in the other State, or are present there for periods exceeding, in the aggregate, 120 days in the previous year or income year — not 183 and not 90. "Professional services" includes scientific, literary, artistic, educational and teaching activities, and the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Capital Gains — Article 14

Article 14 has only three paragraphs, and its architecture is a single, exclusive rule rather than the multi-paragraph structure found in most modern treaties. Article 14(1) taxes capital gains "only in the Contracting State in which the capital asset is situated" — a situs rule. Article 14(2) fixes the situs of company shares: "the situs of the shares of a company shall be deemed to be in the Contracting State in which the company is incorporated." Article 14(3) taxes gains on ships or aircraft in international traffic only in the operating enterprise's own State.

The consequence: shares of an Indian company are situated in India, so India taxes gains on them exclusively, at domestic rates. There is no land-rich test, no minimum-shareholding threshold, no grandfathering date and no buyer-residence condition anywhere in Article 14 — never invent one for this treaty. There is also no separate paragraph for PE movables and no residual "other property" paragraph; the situs rule in 14(1) is the entire architecture.

Other Distinctive Rules

A few further provisions depart from the OECD Model. Shipping and air transport are treated differently: Article 8 gives residence-only taxation to aircraft profits, while Article 9 lets the source State tax shipping profits, subject to the tax being reduced by 50%. Private pensions under Article 19 are taxable only in the source State, reversing the OECD's residence-only rule. Director's fees under Article 17 are taxable exclusively in the company's State. The 2013-substituted Students article (Article 21) exempts grants, maintenance and study-related employment income for up to six years.

Relief from Double Taxation — Article 25

Article 25 gives both countries an ordinary tax credit: India credits Bangladesh tax against Indian tax on the same income, capped at the Indian tax attributable to that income, and Bangladesh gives the mirror credit. Both sides also historically provided tax sparing for exemptions named in each country's 1991-era law, capped at the treaty's own rates — but every named provision has since been repealed or renumbered, and the clauses are frozen to the law in force at signature. Tax sparing should not be presented as a live benefit today.

No LOB, No PPT, No MFN

The Convention has no limitation-of-benefits article, no principal-purpose or main-purpose test, and no most-favoured-nation clause — the 2013 Protocol added none either. The only gate on treaty shopping is the ordinary beneficial-ownership requirement in the dividend, interest and royalty articles, backed by India's domestic GAAR under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961).

How to Claim Treaty Benefits

A Bangladeshi resident claiming a reduced Indian withholding rate needs, in sequence: (1) a valid Tax Residency Certificate from Bangladesh, per section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961); (2) an electronically filed Form 41 (formerly Form 10F); (3) a self-declaration of beneficial ownership and, where relevant, no permanent establishment in India; and (4) payer compliance — the Indian payer deducts tax at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) and files Form 145 before remitting, with Form 146 needed only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without a section 395 certificate. If uncertain, the Bangladeshi payee may apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising deduction at a lower rate or no deduction, while the Indian payer has its own route under section 395(2) (section 195(2) of the Income-tax Act, 1961) to have the Assessing Officer determine the proportion of the sum chargeable to tax. Related-party dealings with a Bangladeshi associated enterprise are separately reportable on Form 48 (formerly Form 3CEB); the more-beneficial-rate rule sits at section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961).

Worked Example: Royalty Versus Pure Service Fee

An Indian manufacturer pays a Bangladeshi engineering firm two invoices of INR 30,00,000 each: one for the right to use a patented production process (know-how), and one for pure technical consultancy advice, with no equipment, patent or know-how transferred, and no PE for the Bangladeshi firm in India.

The know-how payment falls within Article 13(3)'s "information concerning industrial, commercial or scientific experience" and is a royalty: withholding is capped at 10% under Article 13(2), i.e. INR 3,00,000, once a valid TRC and Form 41 are on file — against a domestic-law starting point of 20% (INR 6,00,000) under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025.

The consultancy payment, by contrast, is neither a royalty nor covered by any FTS article, because none exists. It is a business profit under Article 7, and with no PE in India, India has no taxing right over it under the treaty — even though section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 would otherwise treat it as FTS taxable at 20% domestically. The treaty-more-beneficial rule under section 159(4) lets the firm rely on Article 7 instead, provided it substantiates its TRC, Form 41 and no-PE position to the payer.

Common Mistakes

• Using OECD-standard article numbers: Article 10 is Associated Enterprises here, not dividends; dividends, interest, royalties and capital gains all sit one number higher than usual.
• Writing an FTS rate: there is no FTS article. Never quote a 10% or any other "FTS rate" for Bangladesh; characterise the payment as a royalty, a business profit, or Article 15 income instead.
• Citing "Article 14" for the effectively-connected carve-out: the dividend, interest and royalty carve-outs route to "Article 7 or Article 15" — Article 15 is independent personal services, not capital gains.
• Applying a land-rich or shareholding threshold to capital gains: Article 14 has no such test; India taxes gains on Indian-company shares exclusively, regardless of holding size.
• Assuming MLI coverage: Bangladesh has never signed the MLI, so no MLI provision, including the Principal Purpose Test, applies to this treaty.

Frequently Asked Questions

What is the India-Bangladesh DTAA?

The India-Bangladesh DTAA is a bilateral tax treaty, signed 27 August 1991 and in force since 27 May 1992, that allocates taxing rights between the two countries and relieves double taxation on dividends, interest, royalties, business profits, capital gains and other income. Its article numbers run one higher than most Indian treaties, and it has no separate article for fees for technical services.

What is the withholding tax rate on dividends under the India-Bangladesh DTAA?

Article 11(2) sets two tiers: 10% of the gross dividend where the beneficial owner is a company holding at least 10% of the paying company's capital directly, and 15% in all other cases. Both are below India's 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025.

Is there a fees-for-technical-services rate under this treaty?

No. The Convention has no FTS article at all. Equipment-hire and know-how payments are taxed as royalties under Article 13 at 10%. Pure technical, managerial or consultancy fees are business profits under Article 7, taxable in India only if the Bangladeshi enterprise has a permanent establishment here.

How does the India-Bangladesh DTAA treat capital gains on shares of an Indian company?

Article 14 fixes the situs of company shares as the State of incorporation, so shares of an Indian company are treated as situated in India and India taxes gains on them exclusively, at domestic rates. There is no land-rich test, no minimum-shareholding threshold and no grandfathering date.

Does the MLI modify the India-Bangladesh DTAA?

No. India notified this treaty under the MLI, but Bangladesh has never signed the Multilateral Instrument at all. A treaty is modified only when both parties are signatories, so no MLI provision — including the Principal Purpose Test — applies here. Anti-abuse relies entirely on India's domestic GAAR.

What is the construction-site permanent establishment threshold under this treaty?

Article 5(2)(h) sets a threshold of more than 183 days for a building site or construction or assembly project, counted in days rather than months. The treaty has no separate installation or supervisory-activities limb and no services-PE clause of any kind.