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

Quick answer: The India-Romania DTAA caps dividends, interest, royalties, and fees for technical services (FTS) all at a flat 10%, with royalties and FTS combined in one Article 12. Signed 8 March 2013, in force from 16 December 2013 (effective in India from 1 April 2014), the treaty sets a 6-month threshold for both construction and services PE and gives India an unconditional right to tax gains on shares of Indian companies under Article 13(4). The MLI Principal Purpose Test also applies, but only from 1 April 2024 in India and 1 January 2024 in Romania, two years later than Romania's 2022 MLI ratification, because of a reservation Romania filed under MLI Article 35(7).

Key takeaways:

• Dividends, interest, royalties, and FTS all capped at a flat 10% (Articles 10, 11, 12)
• Interest is exempt in the State where it arises when derived and beneficially owned by the other State's government, or by the National Bank of Romania, the Export-Import Bank of Romania, the Reserve Bank of India, the Export-Import Bank of India or the National Housing Bank (Article 11(3))
• Construction and services PE both trigger at more than 6 months, not 90 or 183 days
• Article 13(4): unconditional Indian tax right on Indian-company share gains, no land-rich test
• MLI Principal Purpose Test applies only from 1 April 2024 (India) / 1 January 2024 (Romania)

Overview of the India-Romania DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and Romania is a 31-article treaty signed at New Delhi on 8 March 2013, replacing an earlier 1987 convention with the then-Socialist Republic of Romania.

The Agreement covers taxes on income only, with no capital (wealth) tax article. It follows a largely UN Model structure — a PE article listing a sales outlet, warehouse, and farm as deemed PEs, 6-month construction and services PE thresholds, and an unconditional Article 13(4) right for India to tax gains on Indian-company shares with no land-rich test.

Its most distinctive feature is the rate structure: dividends, interest, royalties, and FTS are all capped at the same flat 10%, with royalties and FTS combined into one article. Beacon Filing's DTAA master guide covers the concepts used throughout this page in more depth.

Treaty History and Current Status

The India-Romania DTAA was signed at New Delhi on 8 March 2013 and entered into force on 16 December 2013 (notified in India by S.O. 680(E), 5 March 2014). It took effect for Indian taxes from 1 April 2014 and for Romanian taxes from 1 January 2014. There is no protocol and no most-favoured-nation clause anywhere in the text.

Both countries ratified the MLI (India from 1 October 2019, Romania from 1 June 2022) and each lists the other's treaty as covered. But Romania's reservation under MLI Article 35(7)(a) ties this treaty's MLI changes to a specific notification, not Romania's general 2022 entry into force: Romania notified this treaty on 6 March 2023, triggering the clock on 5 April 2023. Applying each country's own MLI timing choices, the MLI-modified provisions — the Principal Purpose Test (PPT) under MLI Article 7 and the dual-resident-entity rule under MLI Article 4 — take effect for withholding taxes from 1 April 2024 in India and 1 January 2024 in Romania. No synthesised text for this treaty exists; these dates are computed from Romania's notification and both countries' deposited MLI positions.

India opted for the Simplified LOB under MLI Article 7(6), but Romania did not, and did not opt in to asymmetric application under MLI Article 7(7), so it does not apply here; anti-abuse rests on the PPT plus the treaty's own Article 27 LOB. Romania also reserved out of MLI Articles 9 (land-rich shares), 12 (agency PE), and 13 (activity exemptions) for all its treaties, so none of those changes apply.

Who the Treaty Covers and the Residence Tie-Breaker

Article 1 applies the Agreement to residents of either State. Article 4(1) defines residence by domicile, residence, place of management, or place of registration under each country's own law.

Dual-resident individuals are resolved by the standard test: permanent home, then centre of vital interests, habitual abode, nationality, then mutual agreement. For a dual-resident company, Article 4(3) itself points to place of effective management — but since both countries notified this under MLI Article 4, that rule is replaced by pure competent-authority agreement; absent agreement, the entity is resident of neither State for treaty purposes.

Permanent Establishment Rules

Article 5(1)-(2) defines a permanent establishment (PE) as a fixed place of business, listing the usual items plus three UN-style additions: a sales outlet, a warehouse in relation to a person providing storage facilities for others, and a farm, plantation or other place for agricultural or forestry activity.

Article 5(3) pegs two deemed-PE thresholds to the same 6-month period. A construction, assembly, or installation project (or connected supervisory activity) is a PE only past 6 months. Furnishing services, "including consultancy services," through personnel is likewise a PE only where activity continues, for the same or a connected project, for more than 6 months within any 12-month period — not the 90-day or 183-day test used elsewhere, and there is no separate oil-and-gas deemed-PE clause.

Article 5(4) excludes the usual preparatory-or-auxiliary activities plus one unusual limb: goods displayed at "an occasional temporary fair or exhibition in the process of closing down of such fair or exhibition." Romania's reservation against MLI Article 13 means neither the anti-fragmentation rule nor its narrower options apply, so Article 5(4) stands as written.

Article 5(5) creates an agency PE for a dependent agent who habitually concludes contracts in the enterprise's name, delivers from a maintained stock, or "habitually secures orders … wholly or almost wholly for the enterprise itself" — narrower than clauses also covering group companies. Article 5(6) carries the standard independent-agent sting. Romania's reservation against MLI Article 12 means none of the MLI's broader commissionnaire rules apply here.

Business Profits

Article 7 follows the classic structure: profits are taxable only at home unless the enterprise carries on business through a PE elsewhere, in which case only profits "attributable to that permanent establishment" are taxed there, computed as if the PE dealt wholly independently with the rest of the business. PE expenses are deductible wherever incurred, subject to domestic-law limits; no profit is attributed for merely purchasing goods for the enterprise.

Dividends, Interest, Royalties and Fees for Technical Services

All four categories of passive income share the same flat 10% cap.

Dividends — Article 10

Article 10(2) caps source-State tax on dividends at 10% for a beneficial owner resident in the other State — a flat rate with no shareholding tier.

Interest — Article 11

Article 11(2) caps interest at the same 10%, with no bank tier. Article 11(3) fully exempts interest "derived and beneficially owned by" a named list: the Government, an administrative-territorial unit, a political sub-division or a local authority of the other State; the National Bank of Romania and the Export-Import Bank of Romania; and the Reserve Bank of India, the Export-Import Bank of India and the National Housing Bank. Article 11(3)(c) lets the two competent authorities add further institutions by exchange of letters. This is a recipient-side exemption — IFCI, IDBI, and SIDBI are not on it, and there is no guaranteed-loan carve-out. Interest connected with international shipping or aircraft is instead treated as shipping profits under Article 8(4), outside Article 11.

Royalties and FTS — Article 12

Romania's royalties and FTS sit together in one combined Article 12, both capped at 10% under Article 12(2). The royalty definition in Article 12(3)(a) expressly names computer software inside the copyright limb and covers equipment rental with no carve-out. The FTS definition in Article 12(3)(b) covers "managerial, technical or consultancy services, including the provision of services of technical or other personnel" — there is no make-available test, and the only exclusions are payments already covered by Article 14 or Article 15. Article 12(5)(b) also deems a payment to arise where the services are performed or the right is used, if the payer is resident in neither State and no PE bears the cost.

Effectively connected with a PE

For all four heads, income effectively connected with a PE is instead taxed net of expenses as business profits under Article 7 (or Article 14), generally at the 35% foreign-company rate. See our dedicated withholding tax rates page for India to Romania for a full rate-by-rate breakdown.

Capital Gains

Article 13 assigns taxing rights by asset type:

Article 13(4) is the sharpest departure from the OECD Model: "Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State" — full stop, with no land-rich test, minimum shareholding, or buyer-residence condition. India can tax a Romanian resident's gain on any Indian company's shares at domestic rates. The MLI does not add a land-rich test either, since Romania reserved out of MLI Article 9. Shipping and aircraft gains go to the State of place of effective management, not the alienator's residence.

Employment Income and Other Distinctive Provisions

Article 15 taxes employment income where performed, unless the standard short-stay exemption applies (183 days or less, non-resident employer, cost not borne by a local PE). Article 19 sends government-service pay and pensions to the paying State. Pay shifts to the other State only where the services are rendered there and the individual is a resident who is a national of that State or did not become resident solely to render them; a government pension shifts only where the individual is both a resident and a national of that other State.

Article 20 (Students) exempts study-linked services income for up to 6 years. Article 21 (Professors/Researchers) exempts teaching or research income at a recognised non-profit institution for up to 2 years, unless the research serves a private person's benefit. Article 22(3) taxes lotteries, races, and gambling income at source rather than residence-only. Article 24(3) caps a PE's extra tax burden over a comparable domestic company at 15 percentage points. Article 26 provides full, self-contained assistance in the collection of taxes across eight paragraphs.

Elimination of Double Taxation and Anti-Abuse Rules

Article 23(1) uses the ordinary credit method symmetrically: each country deducts, from its own tax, the income tax paid in the other State, capped at the domestic tax attributable to that income. Article 23(2) keeps exemption-with-progression only as a saving clause for otherwise-exempt income; there is no tax-sparing credit.

The treaty carries its own Article 27, Limitation of Benefits, in four paragraphs: (1) denies benefits to a non-individual whose creation had treaty-shopping as a main purpose; (2) deems that purpose present for a company 50%+ owned by outside individuals, a similarly-owned partnership, an inactive charity, or a resident paying over 50% of gross income to non-residents as deductible payments; (3) carves out residents actively carrying on business at home (other than mere investment-holding, unless banking, insurance, or securities-dealing); (4) restores benefits where the other authority finds avoidance was not a principal purpose.

As a Covered Tax Agreement, the MLI Principal Purpose Test also applies from the computed dates above — Article 27 continues to operate but is superseded to the extent incompatible with the PPT. Because Romania did not opt in to the Simplified LOB, that never applies here. India's domestic GAAR in Chapter XI of the Income-tax Act, 2025 applies to a treaty claim even when it is not beneficial to the assessee, under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961).

Mutual Agreement Procedure

Article 25 lets a person present a case to their residence-State competent authority within three years of the first notification of the disputed action; any agreement reached stands "notwithstanding any time limits" in domestic law. India has not opted into the MLI's Part VI mandatory arbitration, so arbitration is not available here.

How to Claim Treaty Benefits

Step 1: Tax Residency Certificate

A Romanian resident needs a Tax Residency Certificate issued by the competent territorial tax authority within Romania's National Agency for Fiscal Administration (ANAF), under Order of the Minister of Public Finance No. 583/2016.

Step 2: Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41 (formerly Form 10F), giving status, nationality, tax ID, and period of residence. Treaty benefit at source is available only once this is filed alongside the TRC.

Step 3: Payer Withholding and Remittance Forms

The Indian payer withholds at whichever of the treaty or domestic rate is more beneficial, under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), and files Forms 145 and 146 before remitting: Form 145 goes in for every taxable remittance, and Form 146 only for Part C of Form 145, a taxable remittance above Rs 5 lakh made without a section 395 certificate.

Step 4: Lower-Deduction Certificate, if Needed

Where the rate is uncertain, the Romanian recipient applies to the Assessing Officer under section 395(1) (section 197 of the 1961 Act) for a certificate specifying the exact rate; the Indian payer's own route is section 395(2) (section 195(2) of the 1961 Act). The more-beneficial-rate rule is section 159(4) (section 90(2) of the 1961 Act); the TRC requirement is section 159(8) (section 90(4) of the 1961 Act).

Worked Example

A Romanian company holds 40% of an Indian subsidiary and separately licenses software to an unrelated Indian company, with no PE in India in either case.

Dividend: a Rs 50,00,000 dividend. Article 10(2)'s flat 10% (unaffected by the 40% holding) means Rs 5,00,000 withheld, against Rs 10,00,000 at the domestic 20% rate under section 207(1) (Table, Sl. No. 1).

Royalty: a Rs 20,00,000 software licence fee, within Article 12(3)(a)'s express inclusion of computer software. Article 12(2)'s 10% cap means Rs 2,00,000 withheld, against Rs 4,00,000 at the 20% domestic rate under section 207(2) (Table, Sl. No. 1).

Total treaty-rate withholding is Rs 7,00,000, against Rs 14,00,000 at domestic rates — a Rs 7,00,000 saving, provided a valid TRC and Form 41 are filed before each payment.

Common Mistakes

Assuming a shareholding tier on dividends

Article 10(2) has no participation tier: the rate is a flat 10% at any shareholding level.

Importing another treaty's interest-exemption list

Article 11(3)'s list is specific to this treaty. IFCI, IDBI, and SIDBI are not on it.

Using a 90-day or 183-day services-PE test

The threshold here is more than 6 months within any 12-month period, the same as the construction-PE threshold.

Assuming the MLI PPT applied from Romania's 2022 ratification

Romania's Article 35(7)(a) reservation delays the PPT to 1 April 2024 (India) / 1 January 2024 (Romania), not 1 June 2022.

Looking for an MFN clause or a protocol

There is no protocol and no most-favoured-nation clause; Romania's other treaty rates do not flow through to India.

Frequently Asked Questions

What is the withholding tax rate under the India-Romania DTAA?

Dividends, interest, royalties, and fees for technical services are all capped at a flat 10% of the gross amount under Articles 10, 11, and 12. There is no shareholding tier on dividends and no bank tier on interest — the same 10% applies across the board, well below India's 20% domestic rate.

Is any interest exempt under the India-Romania DTAA?

Yes. Article 11(3) exempts interest derived and beneficially owned by the other State's government (including its administrative-territorial units, political sub-divisions and local authorities), the National Bank of Romania, the Export-Import Bank of Romania, the Reserve Bank of India, the Export-Import Bank of India or the National Housing Bank. This is a recipient-side list of named bodies, extendable only by the two competent authorities under Article 11(3)(c); general banks and financial institutions are not covered.

What is the services PE threshold under the India-Romania DTAA?

Article 5(3)(b) creates a permanent establishment where an enterprise furnishes services, including consultancy services, through personnel for more than 6 months within any 12-month period, for the same or a connected project. This mirrors the treaty's 6-month construction-PE threshold and is not the 90-day or 183-day test used in some other Indian treaties.

Does the MLI Principal Purpose Test apply to the India-Romania DTAA?

Yes, but from later dates than Romania's general MLI ratification. Romania's Article 35(7)(a) reservation ties this treaty's MLI changes to a specific notification, computed to trigger on 5 April 2023; applying each country's own timing rules, the Principal Purpose Test applies to withholding taxes from 1 April 2024 in India and 1 January 2024 in Romania, not from Romania's 1 June 2022 MLI entry into force.

How are capital gains on Indian company shares taxed under this treaty?

Article 13(4) gives India an unconditional right to tax gains on shares of any Indian-resident company, with no land-rich test, no minimum shareholding, and no buyer-residence condition. The MLI does not add a land-rich test either, because Romania reserved out of MLI Article 9 for all its treaties. Only gains falling outside paragraphs 1 to 4 of Article 13 are taxed exclusively in the seller's residence State.

What documents does a Romanian resident need to claim treaty benefits in India?

A Tax Residency Certificate issued by the competent Romanian tax office under Order 583/2016, electronically filed Form 41 (formerly Form 10F), and a self-declaration of beneficial ownership and PE status. The Indian payer must also file Form 145 (formerly Form 15CA) before remitting, with Form 146 (formerly Form 15CB) required only for Part C of Form 145: a remittance above Rs 5 lakh made without a section 395 certificate.