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

Quick answer: The India-Russia DTAA caps dividends, interest, royalties, and fees for technical services (FTS) all at a uniform 10% — with no shareholding tiers anywhere in the treaty. The dividend cap carries a subject-to-tax condition rather than a holding threshold, and the interest exemption for government bodies covers only the Government, its political sub-divisions, local authorities, and the Central Bank — no named banks or financial institutions. Signed 25 March 1997 and in force from 11 April 1998, this is one of the few India treaties where the MLI's Simplified Limitation on Benefits genuinely applies, alongside the Principal Purpose Test, for Indian withholding from 1 April 2021.

Key takeaways:

• Dividends, interest, royalties, and FTS are all capped at a flat 10% — no shareholding-based dividend tiers and no bank/institution tier on interest
• The Article 10(2) dividend cap requires the beneficial owner to be subject to tax on the dividend in the other State — an exempt recipient can lose the reduced rate
• Article 11(3) exempts interest only for the Government, its political sub-divisions, local authorities, and the Central Bank; a named-institution limb was left to an exchange of notes that was never concluded
• The construction and supervisory PE threshold is 12 months (Article 5(2)(j)), and there is no services PE clause at all
• Article 13(4) lets India tax a Russian resident's gains on Indian-company shares unconditionally; the MLI adds a 365-day land-rich test reaching shares and comparable interests such as partnership and trust interests
• Russia is a rare Covered Tax Agreement carrying both the MLI's Principal Purpose Test and Simplified Limitation on Benefits, effective for Indian withholding from 1 April 2021

Overview and Treaty Dates

The India-Russia DTAA (ITD consolidated text) was signed at Moscow on 25 March 1997, with a Protocol executed the same day forming an integral part of the Agreement, both done in Russian, Hindi, and English, all equally authentic, with the English text controlling on divergence. The treaty entered into force on 11 April 1998 — thirty days after the later of two diplomatic notifications under Article 28(2) — and was notified in India by GSR 507(E), dated 21 August 1998. It has effect in India for fiscal years from 1 April 1999 (AY 2000-01) and in Russia for withholding and other taxes from 1 January 1999.

It replaced the India-USSR agreement signed at New Delhi on 20 November 1988 (GSR 812(E), amended by GSR 952(E)), extended to Russia by mutual agreement, and an earlier limited agreement on carriage of cargo (GSR 943(E) of 1976, modified 1984). One caution: the Income Tax Department's own landing page prints the signature date as 1998 — that is wrong. The testimonium clause and India's deposited MLI position both confirm signature on 25 March 1997, distinct from the 11 April 1998 entry-into-force date. The treaty covers taxes on income only; unlike some of India's European treaties, it has no capital or wealth-tax article.

Who the Treaty Covers: Residence and the Tie-Breaker

Article 4(1) defines "resident" as any person liable to tax under a Contracting State's laws by reason of domicile, residence, place of registration, or place of management. A dual-resident individual is resolved by the standard cascade: permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement (Article 4(2)). For a dual-resident non-individual, Article 4(3) originally deemed residence to follow the place of effective management — but the MLI's Article 4(1) has replaced that test: residence is now settled only by mutual agreement between the competent authorities, and absent agreement, no treaty relief is available except as they separately agree.

Permanent Establishment Rules

Article 5(1) defines a permanent establishment (PE) as a fixed place of business through which an enterprise's business is wholly or partly carried on. Article 5(2) then lists what the term especially includes: a place of management, branch, office, factory, and workshop, plus UN Model-style items — a mine, oil or gas well, quarry, or any other place of extraction of natural resources; an installation or structure used for exploring or exploiting them; a farm or plantation; and premises used as a sales outlet or for receiving or soliciting orders.

Construction PE — 12 Months, With an Escape Hatch

Article 5(2)(j) treats a construction, installation, or assembly project, or connected supervisory activities, as a PE only if it continues for more than 12 months. Unusually, the clause lets the competent authorities agree, in particular cases, not to treat supervisory activities as a PE even beyond 12 months. Protocol paragraph 2 operationalises this for turnkey projects meeting six conditions — government approval, genuine turnkey status, supervisory fees capped at 10% of total project cost, project cost of at least US$10 million, duration of 12 months to 5 years or such longer period as the approving authority specifies, and the enterprise not being involved in tax avoidance or evasion in that State — in which case the enterprise instead pays 10% gross tax on the supervisory fees under Article 12, rather than net-basis PE tax.

No Services PE; Agency PE

Despite this broad listed-PE menu, Article 5 has no services PE clause — no day-count test for furnishing services through personnel; services are instead generally taxed as FTS under Article 12. Article 5(4)'s agency PE has four limbs: authority to conclude contracts or carry on business activities; habitually securing orders for the enterprise or its group; stock-maintenance with regular delivery; and, rare among India's treaties, manufacturing or processing goods for the enterprise. Article 5(5)'s independent-agent safe harbour is denied to an agent acting wholly or almost wholly for the enterprise or its common-control group.

The MLI modifies several of these: it replaces the contract-conclusion test with a "habitually plays the principal role" standard, narrows the independent-agent exception, adds a "preparatory or auxiliary character" proviso to every PE exclusion plus an anti-fragmentation rule, and aggregates connected activities over 30 days by closely related enterprises when testing the 12-month threshold.

Business Profits and the Four Passive-Income Articles

Article 7 taxes an enterprise's business profits only in its residence State unless it has a PE in the other State, in which case only profits attributable to the PE, computed on an arm's-length basis, may be taxed there — the basis on which effectively connected dividends, interest, royalties, and FTS are taxed once the relevant article routes them here.

Dividends — Article 10

Dividends may be taxed in the source State, but the cap is conditional: "if the beneficial owner of the dividends is subject to tax thereon in the other State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends" (Article 10(2)). This is a single flat rate with no shareholding tiers — no 25%/10% split and no "other cases" rate. What matters is whether the recipient is subject to tax on the dividend at home, not how much of the company it owns; a beneficial owner exempt on the dividend at home can lose the treaty cap. Dividends attributable to a PE or fixed base go to Article 7 or 14 instead (Article 10(4)).

Interest — Article 11

Interest is capped at 10% where the recipient is the beneficial owner (Article 11(2)) — again one rate, with no bank or institution tier. Article 11(3) exempts interest entirely, but only where derived and beneficially owned by (i) the Government, a political sub-division, or a local authority of the other State, or (ii) its Central Bank. A third limb, (iii), extends this to "other Governmental agencies or financial institutions as may be specified and agreed to in an exchange of notes" — but no such exchange has ever been concluded, so no named bank or export-credit institution is exempt. PE-connected interest is carved out by Article 11(5), not paragraph 4, which is only the definition. Article 8(3) separately treats interest on ship/aircraft operating funds as shipping income, outside Article 11 altogether.

Royalties and Fees for Technical Services — Article 12

Russia combines both in a single article, "Royalties and Fees for Technical Services," each capped at 10% (Article 12(2)). "Royalties" (Article 12(3)) covers copyright in literary, artistic, or scientific works, patents, trademarks, designs, know-how, "computer software programme" expressly, and secret processes, plus equipment-use payments. "Fees for technical services" (Article 12(4)) covers "any managerial, technical or consultancy services including the provision of services by technical or other personnel" — with no make-available limb, broader than the India-US or India-UK family — excluding only payments already covered by Article 14 or Article 15. PE-connected amounts fall to Article 7 or 14 (Article 12(5)).

Capital Gains — Article 13

Article 13 allocates taxing rights without setting its own rate:

• Immovable property (13(1)): may also be taxed where situated.
• PE/fixed-base movables (13(2)): taxable in the PE's State, including gains on the PE itself.
• Ships and aircraft (13(3)): taxable only in the alienator's residence State — not by place of effective management, unlike several other India treaties.
• Shares (13(4)): may be taxed where the company is resident — a wholly unconditional source right, with no land-rich test, shareholding threshold, or grandfathering. India can tax a Russian resident's gains on Indian-company shares.
• Residual property (13(5)): taxable only in the residence State.

The MLI adds to this: Article 9(4) gives the source State a further right over gains on "shares or comparable interests, such as interests in a partnership or trust," where more than 50% of their value derived, within the preceding 365 days, from immovable property in that State — reaching interests that Article 13(4)'s shares-only wording does not.

Other Distinctive Income Rules

Article 19 taxes non-government pensions and annuities only in the State where the income is derived — source-only, the reverse of the residence-only default most treaties apply. Article 22 follows the usual residence-only rule for other income (para 1) with a PE carve-out, but para 22(3) lets either State tax lottery, race, and card-game winnings where they arise — a source right the OECD Model's Other Income article lacks. Article 21 exempts visiting professors and researchers for up to two years, subject to a public-interest condition. Article 14 sets the independent-services threshold at presence exceeding 183 days in any 12-month period — a rolling window, not India's financial year.

Elimination of Double Taxation

Article 23 uses the ordinary credit method on both sides — no exemption method and no participation exemption anywhere. Russia credits Indian tax against Russian tax on the same income, capped at the Russian tax on it (23(1)); India deducts Russian tax paid, directly or by deduction at source, capped at the attributable Indian tax (23(2)). Article 23(3) also provides tax sparing for tax spared under development-incentive laws, limited to profits from industrial, construction, manufacturing, or agricultural activities within the State, and applying "only for the first ten years during which this Agreement is effective," extendable by mutual agreement. That ten-year window ran from the date the Agreement took effect, and the treaty text does not record whether the competent authorities exercised the power to extend it.

Anti-Abuse: PPT, Simplified LOB, and GAAR

The Agreement itself has no Limitation of Benefits article and relies on beneficial ownership, plus Article 10(2)'s subject-to-tax condition. The real anti-abuse layer is the MLI: India ratified on 25 June 2019 and Russia on 18 June 2019, with the MLI entering into force for both on 1 October 2019. Its entry into effect was delayed by a Russian reservation; the depositary received Russia's completion notification on 30 April 2020. As a result, the MLI applies to Indian withholding taxes where the taxable event occurs on or after 1 April 2021 (Russia runs from 1 January 2021).

Once effective, the MLI inserts a BEPS preamble and a full Principal Purpose Test covering every treaty benefit. Unusually for an India treaty, it also brings the Simplified Limitation on Benefits — most Indian Covered Tax Agreements carry a PPT only. The SLOB tests whether a claimant is a "qualified person" (individuals; the State and its agencies; listed companies; agreed non-profits and pension funds; or entities 50%-owned by qualified persons for half a 12-month period), excludes mere holding, group supervision, and financing from "active" conduct, offers a 75% derivative-benefits test, and allows discretionary relief. The MLI also adds a third-jurisdiction PE rule (60% tax-comparison threshold) and a saving clause preserving each State's right to tax its own residents.

There is no most-favoured-nation clause in this treaty for dividends, interest, royalties, or FTS. The only MFN-flavoured text, Protocol paragraph 3, applies solely to PE business-profit rates relative to third-country enterprises — never to withholding rates. India's domestic General Anti-Avoidance Rules under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) continue to apply alongside.

How to Claim Treaty Benefits

A Russian resident needs a Tax Residency Certificate issued by the Federal Tax Service of Russia (FNS), which also lets the Indian payer verify the certificate through the FNS's online service. On the Indian side, the claimant electronically files Form 41 (formerly Form 10F) on the income tax portal, with the TRC and a self-declaration of beneficial ownership and PE status.

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) at whichever rate is more beneficial, per 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 is needed only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without a section 395 certificate. Transfer pricing under Article 9 goes on Form 48 (formerly Form 3CEB). If uncertain, apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a lower or nil-deduction certificate.

Worked Example

An Indian company pays a royalty of ₹50,00,000 to a Russian licensor holding a valid TRC and Form 41, with no PE in India. Absent the treaty, the domestic rate is 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) — TDS of ₹10,00,000. Under Article 12(2), the treaty caps this at 10% — TDS of ₹5,00,000, saving ₹5,00,000.

Now suppose an Indian subsidiary pays a ₹1,00,00,000 dividend to its Russian parent. If the parent is subject to tax on it in Russia, Article 10(2) caps withholding at 10% (₹10,00,000) instead of the domestic 20% (₹20,00,000). But if the dividend is exempt in the parent's hands under Russian law, the subject-to-tax condition fails and the payer must withhold the full 20% — the deciding factor is that condition, not the shareholding size.

Common Mistakes to Avoid

• Assuming a large shareholding lowers the dividend rate below 10%. No such tier exists; only the subject-to-tax condition varies the outcome.
• Naming a specific Russian bank as interest-exempt. Only the Government, its sub-divisions, local authorities, and the Central Bank are exempt under Article 11(3).
• Applying a services-PE day-count test. This treaty has no services PE article at all.
• Citing the Article 8(4) two-thirds shipping-tax reduction as current law. Protocol paragraph 1 ended it on 11 April 2001.
• Using 1998 as the signature date. That is the entry-into-force date; the Agreement was signed 25 March 1997.

For the complete rate-by-rate breakdown, see our withholding tax rates page for India to Russia, or our DTAA master guide for how India's treaty network fits together.

Frequently Asked Questions

What is the India-Russia DTAA and what does it cover?

The India-Russia DTAA is a bilateral tax treaty signed on 25 March 1997 and in force from 11 April 1998. It prevents double taxation by allocating taxing rights over dividends, interest, royalties, fees for technical services, business profits, capital gains, and employment income, and it caps withholding on the four main passive-income categories at a uniform 10%.

What is the withholding tax rate on dividends, interest, royalties, and FTS under the treaty?

All four are capped at a flat 10% of the gross amount — Article 10(2) for dividends, Article 11(2) for interest, and Article 12(2) for both royalties and fees for technical services. There are no shareholding tiers on dividends and no separate bank or institution tier on interest; the dividend cap is conditioned on the recipient being subject to tax on that dividend at home.

Does the MLI apply to the India-Russia DTAA?

Yes. Both countries listed the treaty as a Covered Tax Agreement, and the MLI entered into force for both on 1 October 2019, taking effect for Indian withholding taxes from 1 April 2021. It brings in both the Principal Purpose Test and, unusually for an India treaty, the Simplified Limitation on Benefits, alongside several PE-related modifications.

How does the treaty tax capital gains on shares?

Article 13(4) lets the State where the company is resident tax gains on its shares unconditionally, with no land-rich test or shareholding threshold, so India can tax a Russian resident's gains on Indian-company shares. Since the MLI took effect, its Article 9(4) adds a further source right over gains on shares or comparable interests, including partnership and trust interests, that derived more than 50% of their value from immovable property in that State at any time in the preceding 365 days.

What is the construction PE threshold, and is there a services PE?

Article 5(2)(j) sets a 12-month threshold for construction, installation, assembly, or supervisory projects, with a competent-authority escape hatch for qualifying turnkey projects under Protocol paragraph 2. The treaty has no services PE clause, so cross-border services are generally taxed as fees for technical services under Article 12 instead.

What documents do I need to claim DTAA benefits in India?

You need a Tax Residency Certificate from the Federal Tax Service of Russia, an electronically filed Form 41 (formerly Form 10F) with a self-declaration of beneficial ownership and PE status, and the Indian payer must file Form 145 (formerly Form 15CA) before remitting, with Form 146 (formerly Form 15CB) needed only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without a section 395 certificate.