Royalty Tax Rate Between India and Poland Under DTAA

Quick answer: Under Article 13(2) of the India-Poland DTAA, royalties paid to a Polish beneficial owner are capped at 15% of the gross amount, versus India's domestic rate of 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Royalties and fees for technical services share a single combined article (13), each with a broad definition -- royalties include equipment rental, and there is no separate lower tier for either. The 15% rate stems from the 2013 Protocol, effective in India from 1 April 2015, and replaced a considerably higher pre-Protocol rate. Claiming it requires a Polish Tax Residency Certificate and Form 41; the treaty's Article 28A Limitation of Benefits clause and the MLI's Principal Purpose Test (from 1 April 2020) both guard against treaty shopping.

Key takeaways:

• Flat 15% DTAA royalty rate vs 20% domestic rate under section 207(2) of the Income-tax Act, 2025
• Royalties and FTS share one combined article (13), with a single 15% cap for both
• Definition includes equipment rental (industrial, commercial, or scientific equipment), not just IP licensing
• Where connected to a PE, royalties are taxed as business profits under Article 7, not at 15%
• 2013 Protocol reduced the rate from a considerably higher pre-Protocol figure, effective in India from 1 April 2015

Royalty Tax Rate Between India and Poland

Royalty payments between India and Poland -- for patents, trademarks, know-how, copyright licences, and equipment rental -- are governed by Article 13 of the India-Poland DTAA. The original 1989 treaty's higher royalty rate was substantially reduced by the 2013 Amending Protocol, in force 1 June 2014 and effective in India from 1 April 2015. Under Article 13(2), the source-State withholding tax on royalties is now capped at 15% of the gross amount, compared to India's domestic rate of 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 -- a rate that itself doubled from 10% to 20% under the Finance Act 2023.

Notably, Article 13 combines royalties and fees for technical services in a single article with a shared 15% cap, and its definition of royalties is unusually broad -- it expressly covers payments for the use of industrial, commercial, or scientific equipment, not just intangible IP. Polish technology licensors, equipment lessors, and Indian companies paying for Polish know-how should size their withholding obligations against this single combined provision. Our transfer pricing team helps ensure intercompany royalty rates meet the arm's length standard both treaty and domestic law require.

For the treaty's full text and other provisions, see our India-Poland DTAA complete guide, and withholding tax rates: India to Poland for dividends, interest, and FTS alongside royalties.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Absent treaty relief, royalties paid by an Indian resident to a non-resident are taxed at 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) -- doubled from the earlier 10% rate by the Finance Act 2023.

DTAA Rate (With Treaty)

Article 13(2) caps the source-State tax at 15% of the gross amount where the beneficial owner is a resident of the other Contracting State: "such royalties or fees for technical services may also be taxed in the Contracting State in which they arise... but if the beneficial owner... is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount." This 5 percentage-point saving over the 20% domestic rate applies uniformly, with no category-based tiering within Article 13(2) itself.

Effective Tax Savings

On a technology licence generating INR 1 crore in annual royalties, the treaty saves INR 5 lakh in Indian withholding tax (15% instead of 20%) -- a saving that becomes more significant as licensing volumes grow, and which compounds with any relief Poland grants for the Indian tax paid.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The Polish licensor or lessor must be the beneficial owner of the royalty income -- not a licensing intermediary contractually bound to remit the payment onward to an IP owner resident elsewhere.

Tax Residency

The recipient must be resident in Poland under Article 4, applying the standard incorporation/effective-management test for companies and the permanent-home/vital-interests/habitual-abode/nationality cascade in Article 4(2) for individuals.

Anti-Abuse Rules: MLI PPT and Bilateral LOB (Article 28A)

The India-Poland treaty is a Covered Tax Agreement under the Multilateral Instrument (MLI) for both countries, so the MLI's Principal Purpose Test applies to India's withholding taxes from 1 April 2020. On top of that, the 2013 Protocol inserted a bespoke Limitation of Benefits clause at Article 28A denying benefits to a non-individual resident, or to an arrangement or transaction, where obtaining the benefit was a main purpose. IP-holding structures routed through Poland purely to access the 15% cap -- without genuine licensing, development, or management activity there -- are exposed under either test.

No Permanent Establishment or Fixed-Base Connection

Article 13(5) withdraws the 15% cap where the beneficial owner carries on business in the source State through a permanent establishment, or performs independent personal services from a fixed base, and the right, property, or contract generating the royalty is effectively connected with it: "the provisions of paragraphs 1 and 2 shall not apply... In such case, the provisions of article 7 or article 15, as the case may be, shall apply." The royalty is then taxed as ordinary business profits (at the 35% foreign-company rate on a net basis), not at the 15% gross-basis cap.

Royalty-Specific Treaty Provisions Under Article 13

Article 13(1): Residence-State Taxation

Article 13(1) allows the recipient's State of residence to tax royalties: "royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State."

Article 13(2): The 15% Source-State Cap

Paragraph 2 permits source-State taxation as well, at a rate not exceeding 15% of the gross amount, provided the recipient is the beneficial owner.

Article 13(3): Definition of Royalties

"Royalties" is defined as "payments of any kind received as a consideration for the use of, or the right to use, any copyright... any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use any industrial, commercial, or scientific equipment or for information concerning industrial, commercial or scientific experience." The express inclusion of equipment rental is a meaningful departure from a narrower, IP-only definition -- payments for leasing machinery or scientific instruments to an Indian counterparty also fall within Article 13, not Article 7.

Article 13(6): Source Rule

Royalties are deemed to arise in a Contracting State where the payer is that State, its political sub-division, local authority, or a resident of it; where the payer has a PE or fixed base bearing the cost, the royalty is instead deemed to arise where that PE or fixed base is situated.

Article 13(7): Arm's Length Adjustment

Where a special relationship between payer and beneficial owner inflates the royalty above an arm's length amount, "the provisions of this article shall apply only to the last-mentioned amount," and the excess remains taxable under each State's domestic law -- a provision closely tied to India's transfer pricing rules for related-party royalty and technical-fee arrangements.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

A Tax Residency Certificate from the Krajowa Administracja Skarbowa (Polish National Revenue Administration) for the relevant financial year, per section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

Form 41, filed electronically, where the TRC does not carry all the prescribed particulars.

Self-Declaration and Licence Agreement

A self-declaration of beneficial ownership and no-PE status, together with a copy of the underlying licence, equipment-lease, or know-how agreement, which the Indian payer's bank and Chartered Accountant will typically request before certifying the remittance.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Indian licensees must deduct tax at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) -- 15% with valid TRC and Form 41, or 20% by default.

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

Form 145 filed online before remittance, and Form 146 from a Chartered Accountant for remittances exceeding INR 5 lakh.

Section 395(1): Lower Withholding Certificate

Where the Polish licensor expects a lower effective tax liability than the 15% treaty rate would produce, it can apply to the Assessing Officer for a certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) authorising a reduced or nil rate.

Common Disputes and Compliance Points

Because Article 13's definition of royalties expressly covers equipment rental, disputes commonly arise over whether a particular cross-border payment is genuinely for the "use of" equipment (royalty, 15% cap) or for a service performed using that equipment (potentially FTS, also 15% under the same article, or business profits under Article 7 if no PE exists). Since both royalties and FTS sit under the same 15% cap in this treaty, the practical stakes of that classification are lower than in treaties where the two categories carry different rates -- but the classification still matters for the definition of "arising," the arm's length test, and for determining whether a PE-connection analysis under Article 13(5) applies. Groups paying combined licence-and-service fees to a single Polish counterparty should also confirm the arm's length pricing of the royalty component specifically, since Article 13(7) allows only the arm's length portion to benefit from the 15% cap; the excess is taxable under domestic law without the treaty ceiling.

Practical Examples and Calculations

Example 1: Patent Licence for Manufacturing Technology

A Polish engineering firm licenses proprietary manufacturing technology to an Indian factory for INR 2 crore in annual royalties.

• Without DTAA: TDS at 20% = INR 40 lakh.
• With DTAA: TDS at 15% = INR 30 lakh.
• Saving: INR 10 lakh per year, provided the TRC and Form 41 are current.

Example 2: Equipment Rental Payment

An Indian construction company rents specialised Polish-owned scientific equipment for a project, paying INR 60 lakh.

• Treatment: Because Article 13(3) expressly includes "industrial, commercial, or scientific equipment," this payment is a royalty, not business income, and the 15% cap applies -- TDS of INR 9 lakh, versus INR 12 lakh at the 20% domestic rate.

Example 3: PE-Connected Royalty

A Polish software company both licenses standalone software to Indian clients and maintains a Bengaluru development centre (a PE). Where a licence right is effectively connected with that PE's operations, Article 13(5) shifts the taxation to Article 7 business profits (net-basis, 35% foreign-company rate) rather than the 15% gross-basis cap -- a materially different calculation the company must track licence-by-licence.

Frequently Asked Questions

What is the royalty tax rate under the India-Poland DTAA?

Article 13(2) of the India-Poland DTAA caps withholding tax on royalties at 15% of the gross amount, provided the recipient is the beneficial owner and a Polish tax resident. The domestic Indian rate without the treaty is 20% under section 207(2) of the Income-tax Act, 2025 -- doubled from 10% by the Finance Act 2023.

Does the India-Poland treaty's royalty definition cover equipment rental?

Yes. Article 13(3) expressly defines royalties to include payments "for the use of, or the right to use any industrial, commercial, or scientific equipment," in addition to copyright, patent, trademark, and know-how payments -- broader than a purely IP-focused definition.

Are royalties and fees for technical services taxed at different rates under this treaty?

No. Unlike some Indian treaties that set different caps for royalties and fees for technical services, Article 13 combines both categories under a single 15% rate in paragraph 2, though each retains its own definition -- royalties in paragraph 3 and fees for technical services in paragraph 4 -- which affects source rules even though the withholding rate is identical.

What happens if the royalty is not at arm's length?

Under Article 13(7), where a special relationship between payer and recipient inflates the royalty above an arm's length amount, only the arm's length portion benefits from the 15% cap. The excess remains taxable under each State's domestic law and may attract Indian transfer pricing scrutiny.

What documentation does a Polish licensor need to claim the 15% rate?

A Tax Residency Certificate from the Krajowa Administracja Skarbowa, electronically filed Form 41, a self-declaration of beneficial ownership and no-PE status, and a copy of the licence or equipment-lease agreement. The Indian payer must also file Form 145, and Form 146 for remittances exceeding INR 5 lakh.

How does the MLI affect royalty taxation under the India-Poland DTAA?

The MLI's Principal Purpose Test applies to India's withholding taxes from 1 April 2020, since both countries have listed this treaty as a Covered Tax Agreement. It operates alongside the treaty's own bilateral Limitation of Benefits clause under Article 28A, giving Indian authorities two independent grounds to deny the 15% rate to conduit licensing structures.