Overview of the India-Israel DTAA
The Double Taxation Avoidance Agreement between India and Israel was signed on 29 January 1996. It is formally titled the Convention between the Government of the Republic of India and the Government of the State of Israel for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital.
The treaty covers Indian income tax (including surcharges) and Israeli income tax, company tax, capital gains tax, and land appreciation tax. It applies to residents of one or both Contracting States and provides clear rules for allocating taxing rights on cross-border income.
What makes the India-Israel DTAA distinctive is its simplicity. A uniform 10% withholding rate applies across dividends, interest, royalties, and fees for technical services. Unlike many Indian treaties that have tiered rates based on shareholding percentages or income categories, the India-Israel treaty offers a flat structure. This reduces compliance complexity for both Israeli investors in India and Indian businesses with Israeli operations.
India has active DTAAs with over 90 countries, but the Israel treaty stands out for its inclusion of a dedicated Fees for Technical Services article without a make available clause. This means all technical service fees paid to Israeli residents are taxable at 10% in India regardless of whether the service transfers know-how to the Indian recipient.
The treaty uses the credit method to eliminate double taxation. If income is taxed in both countries, the country of residence provides a credit for taxes paid in the source country, up to the amount of its own tax on that income.
Treaty History and Current Status
The India-Israel DTAA has evolved through three key milestones:
Original Convention (1996): Signed on 29 January 1996, the original treaty established the framework for bilateral tax relations. India and Israel had established full diplomatic relations only in 1992, making this treaty an early marker of the strengthening economic relationship.
2015 Protocol Amendment: A Protocol amending the Convention was signed at Jerusalem on 14 October 2015. It entered into force on 19 December 2016 and became effective from 1 January 2017. Key changes included:
- Updated capital gains provisions for shares deriving value from immovable property. The revised treaty provides that gains from alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in India may be taxed in India. This extends to interests in partnerships, trusts, or other entities.
- Removal of deemed tax credits. The original treaty allowed a 15% deemed credit on dividend income and a 10% deemed credit on interest income. The 2015 Protocol eliminated these provisions.
- Addition of a Limitation of Benefits (LOB) article as an anti-abuse provision to prevent treaty shopping.
- Updated exchange of information provisions to include bank information, aligned with internationally accepted standards.
Multilateral Instrument (MLI) Impact: Both India and Israel signed the MLI on 7 June 2017. Israel's MLI entered into force on 1 January 2019, and India's on 1 October 2019. The MLI modifies the treaty to incorporate BEPS minimum standards, including the Principal Purpose Test (PPT) for treaty abuse prevention.
As of March 2026, the treaty as amended by the 2015 Protocol and modified by the MLI represents the current legal framework governing India-Israel tax relations.
Key Treaty Articles
The India-Israel DTAA follows a structure broadly aligned with the OECD Model Convention. Here are the articles most relevant to cross-border business and investment:
Article 7: Business Profits
Business profits of an Israeli enterprise are taxable only in Israel unless the enterprise carries on business in India through a Permanent Establishment (PE). If a PE exists, India can tax only the profits attributable to that PE. The arm's length principle governs profit attribution.
Article 10: Dividends
Dividends paid by an Indian company to an Israeli resident may be taxed in India, but the withholding tax shall not exceed 10% of the gross amount if the recipient is the beneficial owner. There is no tiered structure based on shareholding percentage. The flat 10% rate applies universally, compared to the domestic rate of 20% under Section 115A of the Income Tax Act.
Article 11: Interest
Interest arising in India and paid to an Israeli resident may be taxed in India at a rate not exceeding 10% of the gross amount. This applies to all categories of interest income. The domestic rate without the treaty is 20%, so the treaty provides a 50% reduction.
Article 12: Royalties
Royalties arising in India and paid to an Israeli beneficial owner are taxable at not more than 10% of the gross amount. The term covers payments for the use of copyright, patents, trademarks, designs, models, plans, secret formulas, and industrial, commercial, or scientific experience.
Article 13: Fees for Technical Services
FTS arising in India and paid to an Israeli resident may be taxed in India at a rate not exceeding 10%. The term covers managerial, technical, or consultancy services. Critically, there is no "make available" clause in the India-Israel DTAA. This means all FTS payments are subject to Indian withholding, regardless of whether the service makes technical knowledge available to the payer.
Article 14: Capital Gains
As amended by the 2015 Protocol, capital gains on immovable property are taxable in the country where the property is situated. Gains from shares deriving more than 50% of their value from immovable property in India (at the time of alienation or during the preceding 12 months) may be taxed in India. Gains from alienation of other property are generally taxable only in the country of residence of the alienator.
Withholding Tax Rates Summary
| Income Type | DTAA Rate | Domestic Rate (Without Treaty) | Savings | Article |
|---|---|---|---|---|
| Dividends | 10% | 20% | 50% | Article 10 |
| Interest | 10% | 20% | 50% | Article 11 |
| Royalties | 10% | 20% | 50% | Article 12 |
| Fees for Technical Services | 10% | 20% | 50% | Article 13 |
The uniform 10% rate across all income categories is notable. Many Indian DTAAs have different rates for each income type. The India-Israel treaty simplifies compliance by applying a single rate. No surcharge or health and education cess is levied over treaty rates.
For detailed rate breakdowns and compliance procedures, see our dedicated page: Withholding Tax Rates: India to Israel.
Permanent Establishment Rules
Article 5 of the India-Israel DTAA defines when an Israeli enterprise has a PE in India and becomes subject to Indian taxation on its business profits.
A PE includes a fixed place of business through which an enterprise wholly or partly carries on its business. This covers offices, branches, factories, workshops, mines, quarries, and other places of natural resource extraction.
Construction PE: A building site, construction or assembly project, or supervisory activities in connection therewith constitutes a PE only if it lasts more than six months. This is shorter than the OECD Model's 12-month threshold and reflects the UN Model influence in Indian treaty practice.
Agency PE: A person acting on behalf of an Israeli enterprise in India may constitute a dependent agent PE if they habitually exercise authority to conclude contracts in India. Independent agents acting in the ordinary course of their business are excluded.
Israeli tech companies and defence contractors with India operations should carefully evaluate whether their activities create a PE. The six-month construction threshold is shorter than the OECD Model's 12-month rule and can be triggered more easily.
Tax Residency and Certificate Requirements
To claim treaty benefits, a Tax Residency Certificate (TRC) is mandatory. This requirement was introduced by Section 90(4) of the Indian Income Tax Act.
For Israeli residents: Obtain a TRC from the Israel Tax Authority (Rashut HaMisim). The certificate must confirm that the person is a resident of Israel for tax purposes and specify the period of residency. Israel determines residency based on a centre-of-life test, considering factors like permanent home, family, economic ties, and habitual abode. A 183-day presence test also applies.
For Indian residents claiming benefits in Israel: Obtain a TRC from the Income Tax Department in India using Form 10FA. The TRC is valid for one financial year and must be renewed annually.
In addition to the TRC, non-residents claiming treaty benefits in India must file Form 10F electronically on the Indian income tax portal. This self-declaration provides details of the taxpayer's residential status, country, and tax identification number.
Both documents must be submitted before the first payment from which reduced withholding is claimed. Late submission does not forfeit treaty benefits but creates compliance friction and may result in withholding at domestic rates initially, requiring a refund claim later.
Mutual Agreement Procedure (MAP)
Article 25 of the India-Israel DTAA provides for a Mutual Agreement Procedure when a taxpayer believes that actions of one or both Contracting States result in taxation not in accordance with the treaty.
The process works as follows:
- The taxpayer presents the case to the competent authority of the Contracting State of which they are a resident, within three years from the first notification of the action resulting in taxation not in accordance with the treaty.
- The competent authority of the taxpayer's country evaluates the case. If it appears justified and the authority cannot itself arrive at a satisfactory solution, it contacts the competent authority of the other Contracting State.
- The competent authorities of both states endeavor to resolve the case by mutual agreement. They may also consult together for the elimination of double taxation in cases not provided for in the treaty.
In India, the competent authority for MAP is the Central Board of Direct Taxes (CBDT). In Israel, it is the Director of the International Tax Division of the Israel Tax Authority. MAP cases typically take 18-24 months to resolve, though complex cases may take longer.
The MLI has introduced mandatory binding arbitration provisions for some treaty pairs, but the India-Israel treaty's arbitration status depends on the specific MLI positions adopted by both countries.
How to Claim Treaty Benefits
Claiming benefits under the India-Israel DTAA involves several steps. Getting these right at the outset avoids withholding at domestic rates and the need for subsequent refund applications.
Step 1: Obtain a Tax Residency Certificate
Israeli residents must obtain a TRC from the Israel Tax Authority. Apply well before the first Indian income payment is expected. The TRC must be valid for the relevant financial year.
Step 2: File Form 10F
Submit Form 10F electronically on the Indian Income Tax portal. This is a self-declaration confirming your residency status, country of residence, Tax Identification Number, and the relevant DTAA article under which benefits are claimed.
Step 3: Provide Documentation to the Indian Payer
The Israeli recipient must provide the TRC and Form 10F to the Indian company or person making the payment. The Indian payer then applies the reduced 10% withholding rate instead of the 20% domestic rate.
Step 4: Section 90/90A Declaration
Under Section 195 of the Income Tax Act, any person making a payment to a non-resident must deduct tax at source. The payer must verify that the recipient is eligible for treaty benefits before applying the reduced rate.
Step 5: File Form 15CA and 15CB
For remittances to Israel, the Indian payer must file Form 15CA online and obtain a Chartered Accountant's certificate in Form 15CB. Form 15CA is an information report filed with the Income Tax Department, while Form 15CB certifies the nature of the payment, applicable DTAA provisions, and the tax deducted.
Step 6: Claim Foreign Tax Credit
Israeli recipients who have paid Indian tax can claim a credit against their Israeli tax liability. Israel uses the credit method for eliminating double taxation. The credit is limited to the Israeli tax that would otherwise be payable on the Indian-source income.
For professional assistance with treaty benefit claims, our tax advisory services cover the complete process including TRC coordination, Form 10F filing, and cross-border payment compliance.
Frequently Asked Questions
What is the withholding tax rate on dividends under the India-Israel DTAA?
The withholding tax rate on dividends is 10% of the gross amount, provided the recipient is the beneficial owner. This compares to the domestic rate of 20% under Indian law. No surcharge or cess applies over the treaty rate. The rate is flat, with no tiered structure based on shareholding percentage.
Does the India-Israel DTAA have a make available clause for technical services?
No. The India-Israel DTAA does not include a make available clause in its Fees for Technical Services article (Article 13). All FTS payments to Israeli residents are taxable at 10% in India, regardless of whether the service transfers technical knowledge or know-how to the Indian payer. This is different from treaties with the US and UK, which include make available provisions.
How did the 2015 Protocol change the India-Israel DTAA?
The 2015 Protocol, effective from 1 January 2017, made three significant changes: (1) it updated capital gains provisions so that gains from shares deriving more than 50% of their value from Indian immovable property are taxable in India; (2) it removed deemed tax credits of 15% on dividends and 10% on interest that existed in the original treaty; and (3) it added a Limitation of Benefits article to prevent treaty shopping.
What is the PE threshold for construction projects under the India-Israel DTAA?
A building site, construction project, or assembly project constitutes a Permanent Establishment if it lasts more than six months. This is shorter than the 12-month threshold in the OECD Model Convention. Israeli construction, defence, and infrastructure companies working in India should factor this lower threshold into their project planning.
Can an Israeli company claim treaty benefits if it routes investments through a third country?
The 2015 Protocol added a Limitation of Benefits article that restricts treaty benefits to genuine Israeli residents. Additionally, India's GAAR (General Anti-Avoidance Rules), in force since April 2017, allows tax authorities to disregard arrangements whose principal purpose is obtaining a tax benefit. The MLI's Principal Purpose Test adds another layer of anti-avoidance protection. Treaty benefits require genuine economic substance in Israel.
How do I obtain a Tax Residency Certificate from Israel?
Apply to the Israel Tax Authority (Rashut HaMisim). You need to demonstrate tax residency in Israel based on the centre-of-life test or the 183-day presence test. The TRC should specify the period of residency and be valid for the Indian financial year in which you are claiming treaty benefits. Allow 2-4 weeks for processing.
What happens if my Israeli entity has a Permanent Establishment in India?
If your Israeli enterprise has a PE in India, the business profits attributable to that PE are taxable in India at regular corporate tax rates (currently 25% or 22% under the concessional regime). The treaty rate of 10% applies only to passive income like dividends, interest, royalties, and FTS. Having a PE does not affect your ability to claim reduced withholding rates on passive income, but it creates an Indian tax filing obligation for business profits.
Israel — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner of dividends, regardless of shareholding percentage | 10% | 20% | Article 10(2) |
Israel — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner of interest income | 10% | 20% | Article 11(2) |
Israel — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner of royalties; covers copyright, patent, trademark, design, plan, secret formula, or industrial/commercial/scientific experience | 10% | 20% | Article 12(2) |
Israel — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner of fees; covers managerial, technical, or consultancy services. No 'make available' clause applies. | 10% | 20% | Article 13(2) |