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

Quick answer: The India-Cyprus DTAA caps dividends, interest, royalties, and fees for technical services (FTS) all at a flat 10% — with no shareholding tiers, unusually uniform for an Indian treaty. Signed 18 November 2016 at Nicosia and in force from 14 December 2016 (effective in India from 1 April 2017), the 2016 agreement completely replaced the earlier 13 June 1994 treaty. Capital gains on Indian-company shares acquired before 1 April 2017 are grandfathered to residence-only taxation; shares acquired on or after that date are fully taxable in India, with no phase-in period.

Key takeaways:

• Dividends, interest, royalties, and FTS all capped at a uniform 10% — no tiers on any of the four heads
• Interest derived by the Government of the other State is exempt, as is interest derived by the Reserve Bank of India, the Export-Import Bank of India or the National Housing Bank, but that named-institution limb applies to India only — Cyprus has no counterpart, and there is no payer-side exemption
• FTS has no "make available" requirement; managerial services and secondment of personnel are expressly covered
• The services PE threshold is 90 days, with no carve-out for income already taxed as FTS on the same engagement
• Shares acquired on or after 1 April 2017 are fully taxable in India under Article 13(5), with no half-rate transition window; earlier acquisitions are grandfathered to residence-only taxation
• The treaty is a Covered Tax Agreement under the MLI, but Cyprus reserved out of nearly every substantive MLI article — only the preamble, the Principal Purpose Test, and Mutual Agreement Procedure apply

Overview of the India-Cyprus DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and Cyprus allocates taxing rights between the two countries and reduces withholding on cross-border income. It applies to residents of either State (Article 1) and covers India's income tax (Article 2), and, on the Cyprus side, income tax, corporate income tax, the special contribution for defence, and capital gains tax. The Agreement runs to 30 articles with a single four-paragraph Protocol, covering double taxation relief for business profits, dividends, interest, a combined royalties-and-FTS article, capital gains, employment income, and less common heads such as professors, students, and gambling income.

Treaty History and Current Status

The current treaty is a full replacement, not an amendment: Article 29(4) states the 1994 agreement "shall be terminated on the date that this Agreement comes into effect." The 2016 Agreement and Protocol were signed at Nicosia on 18 November 2016 and entered into force on 14 December 2016. India's notification (S.O. 64(E), 10 January 2017) directs that the treaty "shall be given effect to in the Union of India with effect from the 1st day of April, 2017" — the two dates are roughly three and a half months apart, and both matter. (The ITD page's header block prints "Date of Signature 2017," which conflicts with the Agreement's own recital of 18 November 2016.)

Both countries listed each other under the OECD's Multilateral Instrument (MLI), so the treaty is a Covered Tax Agreement. However, Cyprus reserved against MLI Articles 3, 4, 5, 8, 10, 11, 12, 13, 14 and 15 in their entirety, and against Article 9(1) — so almost none of the MLI's substantive changes apply, regardless of what India separately notified. Only the three minimum standards take effect: the preamble (Article 6), the Principal Purpose Test or "PPT" (Article 7(1)), and Mutual Agreement Procedure improvements (Article 16). See the anti-abuse section below.

Key Treaty Articles

Residence and the Tie-Breaker — Article 4

For dual-resident individuals, Article 4(2) applies the standard sequence: permanent home, then centre of vital interests, then habitual abode, then nationality. For non-individuals, Article 4(3) looks to the place of effective management, with a competent-authority fallback "within two years from the date of invocation of Mutual Agreement Procedure." Because Cyprus reserved against the MLI's mandatory-MAP tie-breaker rule, this original wording survives unchanged.

Business Profits — Article 7

Profits are taxable only in the enterprise's home State unless it has a permanent establishment (PE) elsewhere, in which case only PE-attributable profits are taxed there, on an arm's-length basis. Article 7(3) symmetrically bars a PE from deducting notional royalties, fees, commissions, or management charges paid to its head office, and bars notional interest too, "except in the case of banking enterprises."

Dividends — Article 10

Dividends are taxable in the source State but capped at "10 per cent of the gross amount" for a beneficial owner resident elsewhere (Article 10(2)) — flat, with no shareholding tier. Protocol paragraph 1 once said there would be no Indian withholding "so long as the present system of taxation of dividends in India continues" (the section 10(34) exemption paired with dividend distribution tax); that system ended 1 April 2020, so this clarification is now stale and the 10% cap applies directly. A PE-connected carve-out sits in Article 10(4).

Interest — Article 11

Interest is capped at "10 percent of the gross amount" (Article 11(2)) — again flat, with no bank tier. Article 11(3) exempts interest "derived and beneficially owned by" the Government, a political subdivision, or local authority of the other Contracting State, and — in a clause that opens "in the case of India" with no Cyprus counterpart — the Reserve Bank of India, the Export-Import Bank of India, and the National Housing Bank. This is recipient-side only: nothing exempts interest merely because a government body is the payer. A PE-connected carve-out sits in Article 11(5), and Article 8(4) separately treats shipping/aircraft-related interest as Article 8 profits, outside Article 11 entirely.

Royalties and FTS — Article 12

Royalties and FTS share one article and the same 10% cap in the same paragraph (Article 12(2)). The royalty definition (12(3)(a)) is OECD-style but expressly excludes aircraft/ship rentals, which fall under Article 8 instead. FTS (12(3)(b)) covers "managerial or technical or consultancy services, including the provision of services of technical or other personnel," excluded only for amounts under Articles 14/15. There is no "make available" limitation — pure managerial advice or seconded staff is taxable as FTS regardless of knowledge transfer. A PE-connected carve-out sits in Article 12(4).

Capital Gains — Article 13

Gains are allocated paragraph by paragraph: immovable property to the situs State (13(1)); PE/fixed-base movables to the PE State (13(2)); ships/aircraft to the alienator's residence State (13(3)); "land-rich" company shares, undefined by percentage, to the State where the property sits (13(4)); and, distinctively, all other share gains to the company's State of residence, unconditionally (13(5)). Residual gains fall to residence (13(6)). Protocol paragraph 2 grandfathers shares "acquired at any time prior to the first day of April, 2017" to residence-only taxation; later acquisitions get no protection, with no transitional window. See the dedicated section below.

Employment and Other Income

Dependent services follow the standard 183-day rule (Article 15(2)). Independent personal services (Article 14) use a 183-day threshold, not the 90-day rule found in several other Indian treaties. Professors/researchers are exempt for up to 2 years (Article 20); students for up to 4 consecutive years (Article 21). Article 22(3) adds a distinctively Indian-model feature: income from lotteries, races, card games, and gambling is taxable in the source State, an exception to Article 22(1)'s general residence-only rule.

Withholding Tax Rates Summary

See our dedicated withholding tax rates page for India to Cyprus for the full breakdown.

Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), a taxpayer applies whichever rate is more beneficial — since every treaty rate here beats India's 20% domestic non-resident withholding rate, the treaty rate ordinarily governs once procedural conditions are met.

Permanent Establishment Rules

Article 5(2) lists the usual fixed places plus UN Model-style additions: a sales outlet, "a warehouse in relation to a person providing storage facilities for others," a farm or plantation, and extraction sites. Construction PE arises only if a site, project, or connected supervisory activity lasts more than six months (Article 5(3)(a)). Services PE arises where personnel-furnished services continue "for the same or connected project" for periods aggregating more than 90 days within any 12-month period (Article 5(3)(b)) — with no carve-out for income already taxed as FTS, so both can apply to the same engagement. Article 5(4)'s exclusions cover storage/display and preparatory-or-auxiliary activities, but notably omit the word "delivery." Agency PE (Article 5(5)) has three limbs, including one who "habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself." Insurance PE (Article 5(6)) applies except for re-insurance. There is no oil-sector deemed-PE clause.

Relief, Anti-Abuse, and MLI

Both States apply the ordinary credit method (Article 23(1)), plus exemption-with-progression for exempt income (23(2)); there is no tax-sparing clause. The treaty has no limitation-of-benefits article and no most-favoured-nation clause anywhere in the Agreement or Protocol. Anti-abuse instead rests on beneficial ownership (Articles 10(2)/11(2)/12(2)), India's domestic GAAR under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961), and the MLI's PPT — the only MLI-driven layer that applies, since Cyprus's reservations block everything else and there is no Simplified LOB (India chose it; Cyprus did not). CBDT has clarified that the PPT applies prospectively and does not disturb existing treaty grandfathering.

Tax Residency, MAP, and Claiming Benefits

Cyprus's competent authority is "the Minister of Finance or his authorized representative" (Article 3(1)(i)); operationally, the Tax Residency Certificate is issued by the Tax Department of the Cyprus Ministry of Finance. India's TRC requirement sits in section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), alongside Form 41 (formerly Form 10F). Fiscal years are asymmetric (Article 3(1)(l)): India's runs April-March, Cyprus's runs the calendar year, so a single TRC often straddles two Indian fiscal years. Under Article 25's Mutual Agreement Procedure, a taxpayer has three years from the first notification of disputed taxation to present a case to their competent authority.

To claim benefits: (1) obtain the Cyprus TRC; (2) file Form 41 electronically with status, TIN, and residence period; (3) self-declare beneficial ownership and PE status; (4) have the Indian payer deduct TDS under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) and file Form 145 (formerly Form 15CA), with a Chartered Accountant's certificate in Form 146 (formerly Form 15CB) only where Part C applies — a taxable remittance above INR 5 lakh for which no section 395(1) certificate has been obtained; (5) if needed, apply under section 395(1) (section 197 of the 1961 Act) for a lower-withholding certificate. See our DTAA master guide for India's wider treaty network.

Worked Examples

Dividend withholding: a Cyprus company receiving an INR 50,00,000 dividend would face INR 10,00,000 (20%) domestic withholding; the Article 10(2) treaty rate of 10% cuts this to INR 5,00,000, once a TRC and Form 41 are on file — a straight INR 5,00,000 saving, with no surcharge or cess on top.

Capital gains cliff: a Cyprus resident who bought Indian shares on 15 March 2017 and sells today is taxed only in Cyprus, under Protocol paragraph 2. An otherwise identical resident who bought on 15 April 2017 instead is fully taxable in India on the entire gain under Article 13(5) — there is no phased or partial relief between the two dates.

Common Mistakes

Assuming a shareholding-based dividend tier exists — Article 10(2)'s 10% cap is flat regardless of stake size. Relying on the Protocol's "no dividend withholding" clarification — it lapsed with the section 10(34) regime on 1 April 2020. Mirroring another treaty's interest-exemption list onto Cyprus — the named-institution limb in Article 11(3) is India-only; Cyprus has no counterpart. Applying a "make available" test to FTS — Article 12(3)(b) has no such limitation. Expecting a transition window on share gains — Protocol paragraph 2's 1 April 2017 cut-off is binary, not phased.

Frequently Asked Questions

What is the India-Cyprus DTAA and when does it apply?

The India-Cyprus DTAA is the 2016 tax treaty between India and Cyprus, which completely replaced the 1994 agreement. It was signed on 18 November 2016 at Nicosia, entered into force on 14 December 2016, and took effect in India from 1 April 2017. It caps withholding tax on dividends, interest, royalties, and fees for technical services at a uniform flat 10%.

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

Article 10(2) caps dividend withholding at a flat 10% of the gross amount for a beneficial owner resident in the other State, with no shareholding tiers. Protocol paragraph 1 once suspended Indian withholding because dividends were exempt under section 10(34) of the 1961 Act, but that exemption ended on 1 April 2020, so the 10% cap now applies in full to dividends paid by an Indian company to a Cyprus resident.

Is there an exemption for interest paid to government or central bank entities?

Yes, but only on the recipient side. Article 11(3) exempts interest derived and beneficially owned by the Government, a political subdivision, or a local authority of the other Contracting State, and — for India only — by the Reserve Bank of India, the Export-Import Bank of India, or the National Housing Bank. Cyprus has no equivalent named institution, and nothing exempts interest merely because a government body pays it.

Does the India-Cyprus DTAA have a 'make available' clause for technical fees?

No. Article 12(3)(b) taxes fees for managerial, technical, or consultancy services, including the provision of personnel, at the same 10% rate as royalties, with no requirement that technical knowledge be made available to the payer. Managerial services are expressly covered, unlike treaties that follow the India-USA or India-Singapore make-available model.

How are capital gains on Indian share sales taxed, and does grandfathering apply?

Under Article 13(5), India may tax a Cyprus resident's gains on shares of an Indian company without any land-rich test or shareholding threshold. Protocol paragraph 2 grandfathers shares acquired before 1 April 2017, taxing those gains only in the seller's State of residence. Shares acquired on or after 1 April 2017 are fully taxable in India from day one — there is no half-rate transition window.

Does the Multilateral Instrument (MLI) modify the India-Cyprus DTAA?

The treaty is a Covered Tax Agreement, but Cyprus reserved out of MLI Articles 3 to 5 and 8 to 15, so only the minimum standards apply: the preamble, the Principal Purpose Test, and the Mutual Agreement Procedure. Provisions India separately notified for Cyprus — including the dual-resident tie-breaker and agency-PE changes — do not take effect, because Cyprus's reservation on its own side blocks them.