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

Quick answer: The India-Kenya DTAA caps dividends, interest, royalties, and fees for management, professional and technical services (FTS) all at a flat 10% — no shareholding tiers and no separate bank-interest rate. Signed at Nairobi on 11 July 2016 and in force from 30 August 2017, it replaced the 1985 India-Kenya treaty. FTS sits in its own Article 13, so every article after royalties is numbered one higher than usual — capital gains is Article 14, not 13. Kenya has signed the MLI, but no MLI provision, including the Principal Purpose Test, has yet entered into effect for this treaty.

Key takeaways:

• Dividends, interest, royalties, and FTS are all capped at a flat 10%, with no shareholding tier and no bank-interest tier
• Interest paid to the Government, RBI, the EXIM Bank of India, or the Central Bank of Kenya is exempt under Article 11(3)
• FTS has its own Article 13 covering managerial, professional, and technical services plus personnel secondment, with no make-available test — so every article after royalties shifts up by one
• Capital gains on shares split between Article 14(4) (land-rich companies, tested only by "principally", no percentage) and Article 14(5) (all other shares, unconditionally taxable at source)
• Kenya is a Covered Tax Agreement under the MLI, but its outstanding Article 35(7) reservation means no MLI provision is in effect yet — anti-abuse runs on treaty Article 29 and India's domestic GAAR

Overview of the India-Kenya DTAA

The India-Kenya Double Taxation Avoidance Agreement (DTAA) prevents the same income from being taxed twice for a resident of one country earning income from the other. It was signed at Nairobi on 11 July 2016 and entered into force on 30 August 2017. India notified it through S.O. 731(E) [No. 11/2018 (F.No. 503/01/2005/FTD-II)], dated 19 February 2018, and it has effect in India for fiscal years beginning on or after 1 April 2018 — assessment year 2019-20 onward. It replaced an earlier treaty signed at Nairobi on 12 April 1985.

The Agreement runs to 32 articles plus a two-paragraph Protocol signed the same day, forming an integral part of it. It covers dividends, interest, royalties, fees for management, professional and technical services, capital gains, business profits, and employment income between the two countries — relevant to Indian companies operating in Kenya and Kenyan firms supplying goods, capital, or services to Indian clients.

Treaty History and Current Status

The India-Kenya DTAA was signed in duplicate at Nairobi in English and Hindi, with the English text prevailing in case of divergence. The accompanying Protocol is the only Protocol to this treaty — there has been no later amending protocol.

India ratified the OECD Multilateral Convention (MLI) with effect from 1 October 2019 and listed the Kenya treaty as a Covered Tax Agreement; Kenya also listed India, ratifying the MLI with effect from 1 May 2025. However, Kenya made a reservation under Article 35(7) of the MLI, under which the MLI's provisions take effect for a specific Covered Tax Agreement only 30 days after Kenya notifies the Depositary that it has completed its internal procedures for that agreement — a notification Kenya has not yet filed for the India treaty. As a result, no MLI provision, including the Principal Purpose Test, currently modifies the India-Kenya DTAA. Anti-abuse scrutiny instead runs on the treaty's own Article 29 and India's domestic General Anti-Avoidance Rules (GAAR) under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961).

The treaty blends OECD Model features, such as the ordinary-credit relief method and standard business-profits article, with UN Model provisions: a 90-day services PE, a deemed insurance PE, a broad agency PE, and source-state taxation of other income and share gains under Articles 23(3) and 14(5).

Residence and Permanent Establishment

Article 4(1) defines a resident as any person liable to tax "by reason of his domicile, residence, place of incorporation, place of management or any other criterion of a similar nature" — place of incorporation as a stand-alone test is notable, as many Indian treaties omit it. For dual-resident individuals, Article 4(2) applies the standard cascade: permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement. Dual-resident entities are resolved by place of effective management under Article 4(3), with the competent authorities settling the question by mutual agreement if that place cannot be determined.

Article 5 defines a permanent establishment (PE) as a fixed place of business, with Article 5(2) examples broader than the OECD Model: a sales outlet and a warehouse "in relation to a person providing storage facilities for others" are both listed, alongside farms, plantations, mines, and oil or gas wells. A construction, assembly, or installation project, or connected supervisory activities, is a PE only if it lasts more than six months (Article 5(3)(a)); the Protocol clarifies the clock starts when construction itself begins, not preparatory work. Article 5(3)(b) adds a 90-day services PE for furnishing services (including consultancy) through personnel, for the same or a connected project, aggregating more than 90 days in any 12-month period — with no carve-out for income already taxed as FTS. Article 5(6) deems an insurance enterprise to have a PE if it collects premiums or insures risks through a non-independent person, excluding re-insurance. Article 5(5) creates an agency PE for a dependent agent who habitually concludes contracts, maintains a delivery stock, or habitually secures orders wholly or almost wholly for the enterprise itself. The classic preparatory-or-auxiliary exclusions apply under Article 5(4), and there is no oil-sector deemed-PE clause in this treaty.

Business Profits and Shipping Income

Article 7 taxes business profits only in the enterprise's residence state unless a PE exists, and then only the profits attributable to that PE — with no force-of-attraction rule, and no notional head-office deductions for royalties, fees, commissions, or (except for banks) interest (Article 7(3)). Article 8 taxes shipping and aircraft profits only where the enterprise's place of effective management is situated, except that Article 8(2) gives the state where shipping operations are carried on a source-state right capped at 50% of the tax otherwise imposed under that state's internal law — aircraft are not covered by this carve-out and remain POEM-only.

Dividends, Interest, Royalties and Fees for Management, Professional and Technical Services

All four categories of passive income are capped at a flat 10% of the gross amount, with no shareholding tiers and no reduced-rate category of any kind. For a full article-by-article rate breakdown, see our dedicated withholding tax rates page for India to Kenya.

Dividends — Article 10

The tax "shall not exceed 10 per cent of the gross amount of the dividends" where the recipient is the beneficial owner (Article 10(2)) — a flat rate regardless of shareholding percentage, with no participation exemption. Dividends effectively connected with a PE or fixed base are routed to Article 7 or Article 15 instead (Article 10(4)).

Interest — Article 11

Interest is capped at 10% of the gross amount (Article 11(2)). Article 11(3) fully exempts interest derived and beneficially owned by the Government, a political subdivision, or local authority of either state; in India's case, the Reserve Bank of India and the Export-Import Bank of India; in Kenya's case, the Central Bank of Kenya; or any other government financial institution the competent authorities agree to add by exchange of letters — a short list, with no IFCI/IDBI/NHB/SIDBI-style institutions and no confirmed additions under the exchange-of-letters limb. PE-connected interest falls under Article 7 or Article 15 (Article 11(5)).

Royalties — Article 12

Royalties are capped at 10% (Article 12(2)), covering copyrights, patents, trademarks, designs, secret formulas, industrial/commercial/scientific equipment, and know-how (Article 12(3)); PE-connected royalties fall under Article 7 or Article 15 (Article 12(4)).

Fees for Management, Professional and Technical Services — Article 13

Unusually for an Indian treaty, FTS gets its own article rather than being folded into royalties — which is why capital gains is Article 14, independent personal services Article 15, MAP Article 26, and limitation of benefits Article 29. FTS is capped at 10% (Article 13(2)). Article 13(3) defines it broadly as payments "in consideration for any services of a managerial, technical, professional or consultancy nature including the provision of services of technical or other personnel" — with no make-available requirement, express coverage of "professional" services, and express coverage of personnel secondment. The only carve-outs are payments to the payer's own employee and income already falling under Article 15 or 16. PE-connected FTS falls under Article 7 or Article 15 (Article 13(4)); the source rule in Article 13(5) is wider than for royalties on the payer side but, unlike Article 12(5), does not extend to a fixed base bearing the cost.

Capital Gains — Article 14

Because FTS occupies Article 13, capital gains sits at Article 14, not the usual Article 13. It allocates taxing rights across six paragraphs: immovable property is taxed at situs (14(1)); PE or fixed-base assets, including alienation of the PE itself, at the PE state (14(2)); ships, aircraft, and related movables only at the place of effective management (14(3)); shares (or partnership, trust, or estate interests) in a company whose property consists "directly or indirectly principally of immovable property" may be taxed at source (14(4)) — the test is the single word "principally", with no percentage threshold and no look-back period; all other shares in a resident company may be taxed at source unconditionally (14(5)), with no land-rich test, minimum holding, or grandfathering date; and residual gains are taxable only at residence (14(6)). In practice, a Kenyan resident selling Indian company shares faces Indian capital gains tax in full under Article 14(5), with relief limited to Kenya's ordinary credit under Article 24(3).

Employment, Other Income, and Relief from Double Taxation

Independent and dependent personal services both use a 183-day short-stay test (Articles 15 and 16 respectively), measured over any 12-month period commencing or ending in the fiscal year concerned. Article 21 exempts visiting professors, teachers, and research scholars for up to two years, subject to a public-interest condition for research. Article 22 exempts students' maintenance and education payments, and — unusually — employment remuneration earned during full-time education, for up to six consecutive years. Article 23(3) taxes other income arising in the other state at source, a UN Model departure from the OECD Model's residence-only rule.

Article 24 uses the ordinary credit method on both sides, with no tax sparing: India allows a deduction for Kenyan tax paid, capped at the Indian tax attributable to that income, plus exemption with progression; Kenya mirrors this. An Indian resident claiming credit for Kenyan tax must file Form 67 by the end of the relevant assessment year. Protocol paragraph 2 also preserves either country's more beneficial domestic law — the treaty-level mirror of section 159(4) of the Income-tax Act, 2025.

Anti-Abuse: Limitation of Benefits, GAAR, and the MLI

Article 29 of the treaty, not the MLI, is the operative anti-abuse rule today. Article 29(1) preserves domestic anti-avoidance law, including India's GAAR; Article 29(2) denies benefits where obtaining them was a main purpose of the arrangement — a treaty-text principal-purpose test; Article 29(3) denies benefits to entities without bona fide business activities. There is no mechanical ownership-based test, and no most-favoured-nation clause anywhere in the Agreement or Protocol — a lower rate cannot be imported from another Indian treaty.

Both countries have notified this treaty as a Covered Tax Agreement, but Kenya's outstanding Article 35(7) reservation means no MLI provision is currently in effect, including the Principal Purpose Test. The reservation requires Kenya to notify the Depositary that it has completed its internal procedures for this specific agreement, and the MLI would then take effect only 30 days after that notification — which Kenya has not filed. Until it does, GAAR under section 159(6) of the Income-tax Act, 2025 and treaty Article 29 are the only tools in play.

How to Claim Treaty Benefits

The Kenyan resident must obtain a Tax Residency Certificate confirming residence — the treaty names Kenya's competent authority, under Article 3(1)(h)(ii), as "the Cabinet Secretary responsible for Finance or his authorized representative", though the treaty text sets out no TRC procedure of its own. Because Kenya's fiscal year runs from 1 January and India's from 1 April (Article 3(1)(k)), a Kenyan TRC will typically be calendar-year. The recipient must also electronically file Form 41 (formerly Form 10F) with a self-declaration of beneficial ownership and no Indian PE. The Indian payer withholds under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), applying the more beneficial rate under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), and files Forms 145 and 146 (formerly Forms 15CA and 15CB) before remitting — Form 146 only for Part C of Form 145, that is a taxable remittance above INR 5 lakh made without an Assessing Officer's certificate. Uncertainty about the rate can be resolved by an Assessing Officer's certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961). Payments between associated enterprises additionally require Form 48 (formerly Form 3CEB), the accountant's transfer-pricing report.

Worked Example

Nairobi Advisory Ltd, a Kenyan-resident company with no PE in India, holds shares in an Indian manufacturer and separately provides management consultancy to the same company, with no personnel present in India beyond 90 days (so no services PE arises).

Dividend of ₹60,00,000: domestic withholding at 20% plus 4% cess (20.8%) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) would be ₹12,48,000; the treaty caps it flat at 10%, with no surcharge or cess added: ₹6,00,000 — a saving of ₹6,48,000.

Consultancy fee of ₹25,00,000 (Article 13 FTS): domestic withholding at 20.8% under section 207(2) (Table, Sl. No. 2) would be ₹5,20,000; the treaty rate of 10% is ₹2,50,000 — a saving of ₹2,70,000.

Combined: the domestic liability of ₹17,68,000 falls to a treaty liability of ₹8,50,000, a total saving of ₹9,18,000, provided Nairobi Advisory Ltd furnishes a valid TRC and Form 41 before each payment.

Common Mistakes

Mistake 1: Citing Article 13 for capital gains

Because FTS occupies Article 13 here, capital gains is Article 14 — every article from independent personal services onward is shifted by one against the usual Indian-treaty layout.

Mistake 2: Assuming a make-available test applies to FTS

Article 13(3) has no make-available requirement. A fee for managerial, professional, technical, or consultancy services, or for personnel secondment, is taxable as FTS regardless of whether technical knowledge is transferred.

Mistake 3: Looking for a bank tier on interest, or a percentage on the land-rich share test

There is no reduced rate for commercial-bank interest beyond the flat 10% — only the named Article 11(3) institutions are exempt. And Article 14(4) uses only the word "principally", with no numeric threshold or look-back period to import from another treaty.

Mistake 4: Assuming the MLI's Principal Purpose Test already applies

Kenya's outstanding Article 35(7) reservation means the MLI has not yet modified this treaty. Anti-abuse challenges today rely on treaty Article 29 and India's domestic GAAR, and there is no MFN clause to import a lower third-country rate.

Frequently Asked Questions

What is the India-Kenya DTAA and when did it take effect?

The India-Kenya DTAA is a bilateral tax treaty signed at Nairobi on 11 July 2016 and in force from 30 August 2017. It has effect in India for fiscal years beginning on or after 1 April 2018 and replaced an earlier 1985 India-Kenya treaty. It caps dividends, interest, royalties, and fees for management, professional and technical services at a flat 10%.

What are the withholding tax rates under the India-Kenya DTAA?

All four categories of passive income — dividends, interest, royalties, and fees for management, professional and technical services (FTS) — are capped at a flat 10% of the gross amount. There are no shareholding-based dividend tiers and no separate reduced rate for banks or financial institutions on interest.

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

Yes. Article 11(3) fully exempts interest derived and beneficially owned by the Government, a political subdivision, or local authority of either state, and specifically by the Reserve Bank of India, the Export-Import Bank of India, or the Central Bank of Kenya. The exemption does not extend to ordinary commercial banks or lenders.

How does the India-Kenya DTAA define fees for management, professional and technical services?

FTS has its own Article 13, covering payments for managerial, technical, professional, or consultancy services, including the provision of technical or other personnel. There is no make-available requirement, and professional services are expressly covered — broader than the FTS wording in many other Indian treaties.

How are capital gains on shares taxed under this treaty?

Article 14(4) lets the source state tax gains on shares of a company whose property consists principally of immovable property there, with no percentage threshold. Article 14(5) unconditionally lets the source state tax gains on all other shares in a resident company, with no land-rich test or grandfathering date.

Does the MLI (Multilateral Instrument) apply to the India-Kenya DTAA?

Both countries have listed this treaty as a Covered Tax Agreement, but Kenya's outstanding Article 35(7) reservation means no MLI provision, including the Principal Purpose Test, has yet entered into effect. Anti-abuse scrutiny currently runs on the treaty's own Article 29 and India's domestic GAAR.