Interest Tax Rate Between India and Thailand Under DTAA

Quick answer: Article 11(2) of the India-Thailand DTAA (signed 29 June 2015, in force 13 October 2015, effective in India from 1 April 2016) caps interest withholding tax at 10% of the gross amount -- half of India's 20% domestic rate under section 207(1) of the Income-tax Act, 2025. Article 11(3) fully exempts interest derived and beneficially owned by the Government of either state, the Reserve Bank of India or the Export-Import Bank of India, and the Bank of Thailand or the Export Import Bank of Thailand. There is no separate tier for ordinary commercial banks -- they take the general 10% rate.

Key takeaways:

• Flat 10% DTAA interest rate vs 20% domestic rate under section 207(1) -- a 50% reduction
• Full exemption for interest to the Government, RBI, EXIM Bank of India, Bank of Thailand, and EXIM Bank of Thailand
• The exemption runs to the recipient only -- there is no separate payer-side carve-out for government securities
• Commercial banks and ordinary lenders receive the general 10% rate, not an exemption
• The MLI's Principal Purpose Test applies -- the treaty is a matched Covered Tax Agreement

Interest Tax Rate Between India and Thailand

The India-Thailand Double Taxation Avoidance Agreement, signed at Bangkok on 29 June 2015 and in force from 13 October 2015, provides substantial relief on cross-border interest income. Under Article 11 of the treaty, the maximum withholding tax on interest is capped at 10% of the gross amount, compared with India's domestic rate of 20% under section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

Interest is one of the most frequent categories of cross-border payment between India and Thailand -- corporate loans, trade financing, bonds, and inter-company lending between Indian and Thai group companies all fall under Article 11. Beyond the general 10% cap, the treaty carves out a full exemption for a defined list of government and institutional lenders, discussed below.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Interest paid to a non-resident is taxed at 20% under section 207(1) of the Income-tax Act, 2025 where it arises from money borrowed in foreign currency; rupee-denominated interest to a non-resident falls outside that section and is instead withheld at the rates in force -- 30% for non-corporate recipients and 35% for foreign companies. Surcharge and health and education cess apply on top of the base rate in either case.

DTAA Rate (With Treaty)

Article 11(2) restricts India's right to tax interest paid to a Thai beneficial owner to 10% of the gross amount -- the treaty's exact words are that the tax "shall not exceed 10 per cent of the gross amount of the interest." This flat rate applies to secured and unsecured loans, bonds, debentures, and government securities alike.

Full Exemption Under Article 11(3)

Article 11(3) goes further, providing that interest arising in a Contracting State "shall be exempt from tax in that State, provided that it is derived and beneficially owned by" a defined list of government and institutional recipients:

• the Government, a political sub-division, or a local authority of the other Contracting State;
• on the Indian side: the Reserve Bank of India and the Export-Import Bank of India;
• on the Thai side: the Bank of Thailand and the Export Import Bank of Thailand; and
• any other institution agreed between the competent authorities of the two states.

This exemption structure runs entirely on the recipient side -- it depends on who beneficially owns the interest, not on who pays it. Unlike some Indian DTAAs, there is no separate exemption simply because a government issued the underlying security, and there is no reduced-rate tier for ordinary commercial banks or financial institutions generally: a Thai commercial bank lending to an Indian borrower receives the general 10% rate under Article 11(2), not an exemption.

Effective Tax Savings

For a Thai commercial bank lending the equivalent of INR 20 crore to an Indian company at 6% per annum, annual interest is INR 1.2 crore. Domestic withholding at 20% would be INR 24 lakh; the treaty rate of 10% brings this down to INR 12 lakh -- a saving of INR 12 lakh a year, directly reducing the effective cost of Thai financing for the Indian borrower.

Who Qualifies for the Reduced Rate or Exemption

Beneficial Ownership Requirement

Both the 10% rate and the Article 11(3) exemption are conditioned on the recipient being the beneficial owner of the interest -- someone with an unrestricted right to use the income, not a conduit passing it on to a third party. A back-to-back lending arrangement where a Thai entity merely relays funds borrowed from elsewhere, without economic risk or margin, is unlikely to satisfy this test.

Tax Residency

The recipient must be a resident of Thailand under Article 4 -- for companies, incorporated in Thailand or managed from there; for individuals, present in Thailand for 180 days or more in a tax year under Thai domestic rules. A Tax Residency Certificate from the Revenue Department of Thailand is the primary evidence of this.

Anti-Abuse Rules: MLI Principal Purpose Test

India and Thailand have both ratified the Multilateral Instrument -- India's ratification took effect 1 October 2019, Thailand's 1 July 2022 -- and matched the India-Thailand DTAA as a Covered Tax Agreement, so the MLI's Principal Purpose Test applies. For withholding taxes, the MLI's effect on India-source payments runs from 1 April 2023. The treaty has no Limitation of Benefits article, so the PPT and India's domestic GAAR (effective since April 2017) are the operative safeguards against interest routed through Thailand mainly to access the 10% rate or the Article 11(3) exemption.

No Permanent Establishment Connection

Under Article 11(5), the reduced rate and exemption do not apply where the Thai beneficial owner carries on business in India through a permanent establishment (or independent personal services from a fixed base) and the debt-claim generating the interest is effectively connected with it. In that case the interest is taxed as business profits under Article 7 (or under Article 14), at the applicable corporate rate rather than at 10%.

Interest-Specific Treaty Provisions Under Article 11

Definition of Interest

Article 11(4) defines interest broadly as "income, from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits," including government securities, bonds and debentures with any attached premiums or prizes, and other income assimilated to interest under the source state's tax law.

Article 11(2): The Rate Cap

The 10% cap applies to interest paid to a beneficial owner resident in the other state, on top of the residence state's unrestricted right under Article 11(1) to tax the same income.

Article 11(3): Government and Institutional Exemption

As set out above, this paragraph fully exempts interest paid to the listed government bodies and named institutions of either state, and leaves room for the competent authorities to agree to extend it to further institutions.

Article 11(5): Permanent Establishment Exception

Where the debt-claim is effectively connected with a PE or fixed base the beneficial owner has in the state where the interest arises, Article 11 does not apply and the interest is instead taxed under Article 7 or Article 14.

Article 11(6): Where Interest Is Treated as Arising

Article 11(6) fixes the source of the interest: it "shall be deemed to arise in a Contracting State when the payer is the resident of that State." Where the payer, resident or not, has a permanent establishment or fixed base in a Contracting State in connection with which the indebtedness was incurred, and that permanent establishment or fixed base bears the interest, the interest is instead deemed to arise where the permanent establishment or fixed base is situated. So interest borne by the Indian branch of a foreign company is Indian-source and falls within India's 10% capped right, while interest paid by an Indian company but borne by its own foreign permanent establishment does not.

Article 11(7): Arm's Length Rule

Where the amount of interest paid exceeds what independent parties would have agreed absent a special relationship between payer and recipient, only the arm's-length portion qualifies for the 10% rate or the exemption. The excess remains taxable under each state's domestic law, engaging India's transfer pricing rules for related-party loans.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

The Thai lender must provide a TRC issued by the Revenue Department of Thailand, confirming Thai tax residency for the relevant period, as required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

Where the TRC lacks the prescribed details, Form 41 must be filed electronically on the Indian Income Tax e-filing portal, giving the lender's name, status, nationality, Thai tax identification number, period of residence, and the nature of the income.

Self-Declaration and No-PE Certificate

A written self-declaration confirming beneficial ownership and the absence of a permanent establishment in India to which the debt-claim is attributable is standard supporting documentation, alongside the underlying loan agreement.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian payer must deduct tax at source on interest paid to the Thai lender at the time of credit or payment, whichever is earlier -- 10% with complete treaty documentation, full exemption where Article 11(3) applies, or otherwise 20% (or the rates in force for rupee-denominated interest).

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting interest to Thailand, the Indian payer must file Form 145 electronically. For amounts exceeding INR 5 lakh in a financial year, a Chartered Accountant must certify Form 146, confirming the applicable treaty position and that TDS has been correctly deducted (or that Article 11(3) exempts the payment).

Lower Withholding Certificate (Section 395(1))

Where the recipient's actual liability is lower than the amount otherwise deductible, the Thai lender may apply to the Indian Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising a lower or nil rate of withholding.

FEMA Compliance for Cross-Border Loans

Interest payments on External Commercial Borrowings from Thai lenders must also satisfy FEMA pricing rules under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, whose Schedule I was substituted by Notification FEMA 3(R)(5)/2026-RB with effect from 16 February 2026. There is no all-in-cost ceiling for ECB with an average maturity of three years or more (pricing follows prevailing market conditions), while ECB with an average maturity below three years must keep within the Trade Credit ceiling of benchmark plus 300 basis points (foreign currency) or plus 250 basis points (rupee-denominated). Form ECB-2 must be filed through the designated AD Category-I bank within seven calendar days from the end of the month in which proceeds were received or debt servicing occurred.

Practical Examples and Calculations

Example 1: Thai Commercial Bank Loan to an Indian Company

A Thai commercial bank lends the equivalent of INR 15 crore to an Indian manufacturer at 7% per annum. Annual interest is INR 1.05 crore.

• Without DTAA: TDS at 20% = INR 21 lakh. Net interest received = INR 84 lakh.
• With DTAA: TDS at 10% = INR 10.5 lakh. Net interest received = INR 94.5 lakh.
• Annual saving: INR 10.5 lakh.

Example 2: Interest Paid to the Bank of Thailand

An Indian public sector entity pays interest on a sovereign bond held by the Bank of Thailand. Because the recipient falls squarely within Article 11(3), the interest is fully exempt from Indian withholding tax -- an effective rate of 0%, supporting central-bank reserve management rather than ordinary commercial lending.

Example 3: Related-Party Loan with Transfer Pricing Adjustment

A Thai parent lends INR 30 crore to its Indian subsidiary at 11% interest (INR 3.3 crore annually). India's transfer pricing officer determines the arm's-length rate is 8%. The 10% treaty rate applies to the arm's-length portion (INR 2.4 crore of interest), while the excess INR 0.9 crore is subject to a transfer-pricing adjustment and may be disallowed as a deduction for the Indian subsidiary.

For the complete treaty overview, see our India-Thailand DTAA guide and withholding tax rates page. Beacon Filing's FEMA and RBI compliance team can assist with ECB pricing, Form ECB-2 filing, and treaty documentation for cross-border loans.

Frequently Asked Questions

What is the interest tax rate under the India-Thailand DTAA?

Under Article 11(2) of the India-Thailand DTAA, the maximum withholding tax on interest is 10% of the gross amount, provided the recipient is the beneficial owner. This is half of India's domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) on foreign-currency borrowings.

Which interest payments are fully exempt under the treaty?

Article 11(3) exempts interest derived and beneficially owned by the Government of either state, the Reserve Bank of India, the Export-Import Bank of India, the Bank of Thailand, or the Export Import Bank of Thailand, and any other institution the two competent authorities agree to add. Ordinary commercial lenders do not qualify for this exemption.

Do commercial banks get a lower rate than 10% on interest?

No. Unlike some Indian treaties, the India-Thailand DTAA has no separate tier for commercial banks or financial institutions generally. A Thai bank lending to an Indian borrower is taxed at the general 10% treaty rate under Article 11(2), the same rate that applies to any other Thai beneficial owner of interest.

What documentation is needed to claim the reduced rate or exemption?

A Tax Residency Certificate from the Revenue Department of Thailand, Form 41 (formerly Form 10F) filed electronically with the Indian Income Tax Department, and a self-declaration of beneficial ownership and no-PE status. The Indian payer must also file Form 145, and Form 146 for remittances exceeding INR 5 lakh.

Does the MLI affect interest taxation under this treaty?

Yes. Both India and Thailand have ratified the MLI, and the India-Thailand DTAA is matched as a Covered Tax Agreement, so the Principal Purpose Test applies. Interest arrangements structured mainly to access the 10% rate or the Article 11(3) exemption without genuine economic substance can be denied treaty benefits.

What happens if the interest rate exceeds arm's length?

Where interest paid exceeds what independent parties would agree due to a special relationship between payer and recipient, only the arm's-length portion qualifies for the 10% treaty rate or exemption. The excess is taxable under each country's domestic law and is typically addressed through a transfer pricing adjustment.