India-Turkey DTAA: Complete Treaty Guide

Quick answer: The India-Turkey DTAA, signed on 31 January 1995 and effective from 1 February 1997, is based on the OECD Model Tax Convention and caps withholding tax on dividends, royalties, and fees for technical services at 15%, with interest capped at 15% generally (10% for bank/financial-institution loans, and fully exempt for government and central bank interest) — well below India's 20% domestic withholding rate. Both countries signed the MLI, but only India has ratified it — Turkey has not yet deposited its instrument of ratification, so MLI provisions do not yet apply to this treaty.

Key takeaways:

• Signed 31 January 1995; entered into force 1 February 1997 (OECD Model).
• Dividends capped at 15% of gross amount (Article 10(2)).
• Interest: 15% general, 10% for bank/FI loans, exempt for government interest (Article 11).
• Royalties and fees for technical services both capped at 15% (Article 12(2)).
• India has ratified the MLI; Turkey has signed but not yet ratified it, so MLI provisions do not yet apply.

Overview of the India-Turkey DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and Turkey is a bilateral tax treaty designed to eliminate double taxation of income earned across both jurisdictions and prevent fiscal evasion. Formally titled the "Agreement between the Government of the Republic of India and the Government of the Republic of Turkey for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income," this treaty provides the framework for allocating taxing rights between the two nations.

The agreement covers Indian income tax (including surcharges) and Turkish income tax (Gelir Vergisi) and corporation tax (Kurumlar Vergisi). Both Indian and Turkish residents engaged in cross-border trade, investment, or services benefit from reduced withholding tax rates and clear rules on income taxation. Understanding this DTAA is essential for businesses operating between these two strategically important economies, particularly as bilateral trade between India and Turkey has grown significantly in recent years.

Treaty History and Current Status

The India-Turkey DTAA was signed on 31 January 1995 in New Delhi and entered into force on 1 February 1997 following the exchange of instruments of ratification. The treaty is based on the OECD Model Tax Convention framework, with certain modifications reflecting the bilateral relationship between the two countries.

The treaty applies to taxes on income imposed on behalf of each Contracting State. In India, this covers the income tax including any surcharge thereon. In Turkey, it covers the income tax (Gelir Vergisi) and the corporation tax (Kurumlar Vergisi). The English text of the treaty is operative in case of any divergence between the Hindi, Turkish, and English versions.

Regarding the Multilateral Instrument (MLI), both India and Turkey signed the MLI on 7 June 2017. India deposited its instrument of ratification on 25 June 2019, and the MLI entered into force for India on 1 October 2019. Turkey, however, has not yet deposited its instrument of ratification, so the MLI does not currently modify the India-Turkey DTAA. India has listed the treaty as a Covered Tax Agreement, but MLI provisions including the Principal Purpose Test (PPT) and preamble modifications will take effect only once Turkey also ratifies the Convention.

Key Treaty Articles

The India-Turkey DTAA contains detailed provisions across multiple articles governing the taxation of various income types in cross-border transactions.

Business Profits (Article 7)

Business profits of an enterprise of one Contracting State are taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment. If a PE exists, the other State may tax only the profits attributable to that PE. The treaty requires that profits be determined as if the PE were a separate and independent enterprise dealing wholly independently with the enterprise of which it is a PE.

Dividends (Article 10)

Dividends paid by a company resident in one State to a resident of the other State may be taxed in both States. However, the source State's withholding tax is capped at 15% of the gross amount of the dividends when the recipient is the beneficial owner. This represents a 5 percentage point saving compared to India's domestic rate of 20%. Indian payers must comply with Section 195 and file Form 15CA/15CB when remitting dividends to Turkish shareholders.

Interest (Article 11)

Interest arising in one Contracting State paid to a resident of the other State is subject to a tiered withholding structure. Interest on bank or financial institution loans is capped at 10%, while all other interest is capped at 15%. Interest paid to the Government, central bank, or export-import bank of the other State is fully exempt. This tiered structure incentivises institutional lending between India and Turkey.

Royalties and Fees for Technical Services (Article 12)

Royalties and fees for technical services may be taxed in the source State at a maximum rate of 15% of the gross amount. The definition of royalties covers payments for the use of or right to use any copyright, patent, trademark, design, model, plan, secret formula, or process, as well as information concerning industrial, commercial, or scientific experience. FTS includes payments for managerial, technical, or consultancy services. This is a meaningful 5 percentage point saving over the 20% domestic rate, making tax advisory support valuable for structuring payments efficiently.

Capital Gains (Article 13)

Capital gains from immovable property are taxable where the property is situated. Gains from shares deriving their value principally from immovable property may also be taxed in the property's location State. For other shares, gains may be taxed in the source State if the shares were held for less than one year; otherwise, gains are taxable only in the resident State. Gains from ships and aircraft in international traffic are taxable only in the State where the enterprise's place of effective management is situated. Gains from other property are generally taxable only in the resident State.

Withholding Tax Rates Summary

The following table compares the treaty-reduced rates with India's domestic withholding tax rates for payments to Turkish residents:

The India-Turkey DTAA provides meaningful savings across all payment categories, with bank interest enjoying the most favourable treatment at 10%. For a detailed breakdown of each rate category, refer to our withholding tax rates: India to Turkey page.

Permanent Establishment Rules

Article 5 of the India-Turkey DTAA defines PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on. The standard PE definition includes places of management, branches, offices, factories, workshops, mines, oil or gas wells, quarries, and other places of natural resource extraction.

Construction PE

A building site, construction, installation, or assembly project, including supervisory activities in connection therewith, constitutes a PE if it continues for a period exceeding six months. This is a shorter threshold than the 12-month standard in the OECD Model, meaning construction projects in India or Turkey trigger PE status more quickly.

Service PE and Equipment Rental

The furnishing of services or the rental of equipment in connection with the exploration, exploitation, or extraction of mineral oils constitutes a PE if such activities continue for a period exceeding six months. This provision is particularly relevant for Turkish companies providing services in India's oil and gas sector.

Dependent Agent PE

An enterprise is deemed to have a PE if a person acting on its behalf habitually exercises authority to conclude contracts in the name of the enterprise in the other Contracting State, unless the person's activities are limited to preparatory or auxiliary functions. Independent agents acting in the ordinary course of their business are excluded from this provision under Article 5(5).

For Turkish companies planning India operations, understanding these PE triggers is essential. Our India entry strategy service helps structure operations to manage PE exposure effectively.

Tax Residency and Certificate Requirements

To claim treaty benefits under the India-Turkey DTAA, the taxpayer must establish tax residency in either India or Turkey. The treaty includes tie-breaker rules for dual residents based on permanent home, centre of vital interests, habitual abode, and nationality.

The key documentation requirements include:

• Tax Residency Certificate (TRC) — Issued by the tax authority of the country of residence. Turkish residents must obtain a TRC from the Turkish Revenue Administration (Gelir Idaresi Baskanligi) under the Ministry of Treasury and Finance.
• Form 10F — Required to be furnished by the non-resident to the Indian payer, containing details like status, nationality, Turkish tax identification number, and period of residential status. Must be filed electronically on the Indian income tax portal.
• Self-declaration — Confirming beneficial ownership of the income and that the arrangement is not designed for treaty shopping.

Without valid documentation, the Indian payer must deduct tax at the full domestic rate. Companies should engage FEMA and RBI compliance experts to ensure all regulatory requirements are met.

Mutual Agreement Procedure (MAP)

Article 24 of the India-Turkey DTAA provides for a Mutual Agreement Procedure to resolve disputes arising from taxation not in accordance with the treaty. A resident who considers that actions of one or both States result in taxation not in accordance with the Convention can present the case to the competent authority of the State of residence within three years from the first notification of the action.

The competent authorities of India (CBDT) and Turkey (Ministry of Treasury and Finance) shall endeavour to resolve the case by mutual agreement. They may also consult to eliminate double taxation in cases not provided for in the Convention. MAP proceedings run independently of domestic remedies and can be pursued simultaneously with appeals before domestic courts or tribunals.

How to Claim Treaty Benefits

Claiming reduced rates under the India-Turkey DTAA requires compliance with Indian tax procedures. Here is the step-by-step process:

Step 1: Obtain a Tax Residency Certificate

The Turkish recipient must obtain a TRC from the Turkish Revenue Administration (Gelir Idaresi Baskanligi) confirming Turkish tax residency for the relevant financial year.

Step 2: Submit Form 10F

The non-resident must furnish Form 10F electronically on the Indian income tax e-filing portal. This form requires details including name, status, nationality, Turkish tax identification number, period of residential status, and address in Turkey.

Step 3: Provide Self-Declaration

A self-declaration confirming beneficial ownership, no PE in India (if applicable), and eligibility under the specific treaty article must be submitted to the Indian payer.

Step 4: Indian Payer Deducts at Treaty Rate

The Indian company deducts TDS at the applicable treaty rate under Section 195 and remits to the government. The payer must file Form 15CA (online) and Form 15CB (CA certificate) for remittances exceeding INR 5 lakh.

Step 5: Claim Relief Under Section 90

Treaty relief in India is given effect under Section 90 of the Indian Income Tax Act, and the Turkish resident claims credit for Indian taxes paid against Turkish tax liability under Article 22 of the treaty. India follows the direct credit method — taxes paid in Turkey are credited against Indian tax liability on the same income. Turkey provides either exemption or credit depending on the income type under Article 22 of the treaty.

If you are a Turkish company registering a company in India, understanding treaty benefit procedures from inception helps optimise your tax structure. Our transfer pricing team ensures intercompany transactions comply with arm's length principles under both Indian and Turkish regulations.

Frequently Asked Questions

What is the India-Turkey DTAA?

The India-Turkey DTAA is a bilateral tax treaty signed on 31 January 1995 in New Delhi and effective from 1 February 1997. It prevents double taxation of the same income in both countries by allocating taxing rights and providing mechanisms for tax relief, including reduced withholding tax rates on dividends (15%), interest (10-15%), royalties (15%), and fees for technical services (15%).

What are the withholding tax rates on dividends under the India-Turkey DTAA?

Dividends are taxed at a maximum rate of 15% of the gross amount when the recipient is the beneficial owner under Article 10(2). This provides a 5 percentage point saving compared to India's domestic rate of 20%. Unlike some DTAAs, the India-Turkey treaty does not provide different rates based on shareholding percentage.

Is the India-Turkey DTAA covered under the Multilateral Instrument (MLI)?

Both India and Turkey signed the MLI on 7 June 2017. India has ratified it (in force from 1 October 2019) and listed the India-Turkey DTAA as a Covered Tax Agreement, but Turkey has not yet deposited its instrument of ratification, so MLI provisions including the Principal Purpose Test (PPT) do not yet apply to this treaty.

What is the interest withholding rate for Turkish bank loans to Indian entities?

Interest on loans granted by a bank or financial institution of Turkey is subject to a reduced withholding rate of 10% under Article 11(2)(a), compared to 15% for general interest and 20% for the domestic rate. Interest paid to the Turkish government, central bank, or EXIM bank is fully exempt.

How are capital gains on Indian shares taxed for Turkish residents?

For shares held less than one year, capital gains may be taxed in both India and Turkey (with credit for Indian tax against Turkish liability). For shares held one year or more, gains are taxable only in Turkey (the State of residence). Shares in property-rich companies and immovable property gains are taxable in the property State regardless of holding period.

What documents are needed to claim treaty benefits?

To claim reduced rates, the Turkish recipient needs a Tax Residency Certificate from the Turkish Revenue Administration (Gelir Idaresi Baskanligi), electronically filed Form 10F on the Indian income tax portal, a self-declaration confirming beneficial ownership, and a no-PE declaration. The Indian payer must file Form 15CA and obtain Form 15CB for remittances exceeding INR 5 lakh.

What is the PE threshold for construction projects?

A building site, construction, installation, or assembly project constitutes a permanent establishment if it continues for a period exceeding six months under Article 5. This includes supervisory activities connected to such projects.