Royalty Tax Rate Between India and South Africa Under DTAA

Quick answer: Article 12(2) of the India-South Africa DTAA caps royalty withholding tax at 10% 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) — the rate having doubled from 10% under the Finance Act 2023. Royalties and fees for technical services share the same Article 12 and the same 10% cap; the definition of "royalties" under Article 12(3) is broad, covering copyright, patents, trademarks, designs, secret formulas or processes, industrial/commercial/scientific equipment, and know-how.

Key takeaways:

• Flat 10% DTAA royalty rate under Article 12(2) vs 20% domestic rate — a 50% reduction
• Royalties and fees for technical services are combined in one Article 12, both capped at 10%
• Broad royalty definition under Article 12(3): copyright (incl. films/tapes), patents, trademarks, designs, formulas/processes, equipment, and know-how
• Royalty connected to a permanent establishment is taxed as business profits under Article 7 instead, generally at the 35% foreign-company rate
• No most-favoured-nation clause in this treaty; MLI Principal Purpose Test applies from 1 January 2023

Royalty Tax Rate Between India and South Africa

Article 12 of the India-South Africa DTAA caps the withholding tax on royalties at 10% of the gross amount, whether the payment is for a patent licence, a trademark, software or process know-how, or the use of industrial equipment. South African companies routinely license manufacturing know-how, mining technology, and brand rights to Indian partners, while Indian IT and pharmaceutical companies license technology into South Africa — the flat 10% cap on both sides of this corridor keeps the compliance analysis simple compared with treaties that carve out multiple royalty tiers.

The India-South Africa Double Taxation Avoidance Agreement (DTAA) was signed at New Delhi on 4 December 1996, together with a Protocol that forms an integral part of the Agreement, and entered into force on 28 November 1997 under Article 28, notified in India by GSR 198(E) dated 21 April 1998. The treaty follows the UN Model Tax Convention, which tends to preserve greater source-State taxing rights than the OECD Model — consistent with the bilateral relationship between two developing, BRICS-partner economies.

A Protocol amending the Agreement was signed at Pretoria on 26 July 2013 and entered into force on 26 November 2014 (notified by the CBDT vide Notification No. 10/2015 / S.O. 316(E) dated 2 February 2015, with retrospective effect from 26 November 2014). This 2013 Protocol replaced Article 25 (Exchange of Information) with the current OECD-standard text, extending information exchange to taxes of every kind and removing bank-secrecy as a ground to refuse information. It made no change to any withholding rate — the rates below have never been amended since 1996.

Both India and South Africa have ratified the Multilateral Instrument (MLI): India deposited its instrument on 25 June 2019 (in force 1 October 2019) and South Africa on 30 September 2022 (in force 1 January 2023). The India-South Africa DTAA is a matched Covered Tax Agreement, and the South African Revenue Service (SARS) has published a synthesised text of the treaty as modified by the MLI, with the Principal Purpose Test (PPT) taking effect for withholding taxes from 1 January 2023 and for other taxes from 1 July 2023. This treaty carries no most-favoured-nation (MFN) clause — unlike some of India's other treaties, no protocol grants an automatic reduction if India later agrees a lower rate with a third OECD country.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), royalties paid to a non-resident are withheld at 20% (before surcharge and cess) — doubled from the earlier 10% by the Finance Act 2023, effective 1 April 2023. With surcharge and health & education cess, the effective domestic rate for a foreign company can reach roughly 21.84%.

DTAA Rate (With Treaty)

Article 12(2) restricts India's source-State tax to 10% of the gross amount, provided the recipient is the beneficial owner — inclusive of surcharge and cess, with nothing added on top once the treaty rate is properly claimed.

Effective Tax Savings

A South African engineering firm licenses patented mining-equipment technology to its Indian joint venture for an annual royalty of INR 90 lakh. Without the treaty, TDS at 20% is INR 18 lakh, leaving INR 72 lakh. With the treaty (valid TRC and Form 41), TDS at 10% is INR 9 lakh, leaving INR 81 lakh — a saving of INR 9 lakh a year, which the South African licensor can offset against its own domestic tax through a foreign tax credit.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

Article 12(2) requires the South African recipient to be the beneficial owner of the royalty — genuine economic owner of the underlying IP or equipment right, not a conduit holding rights on behalf of a third-country owner.

Tax Residency

The recipient must be a South African tax resident under Article 4, evidenced by a Tax Residency Certificate from SARS.

Anti-Abuse Rules: MLI PPT and GAAR

As a matched Covered Tax Agreement, this treaty's benefits are subject to the MLI's Principal Purpose Test from 1 January 2023, in addition to India's domestic GAAR and Article 12(2)'s own beneficial-ownership test. There is no Limitation of Benefits article and no MFN clause in this treaty, so structures routing IP through South Africa purely to access the 10% rate can be challenged on beneficial-ownership or PPT/GAAR grounds alone.

No PE Attribution

Under Article 12(5), the 10% cap does not apply where the South African beneficial owner has a permanent establishment or fixed base in India and the right or property generating the royalty is effectively connected with it. The royalty is then taxed as business profits under Article 7, generally at the 35% corporate rate for foreign companies (cut from 40% effective FY 2024-25 under the Finance (No.2) Act 2024).

Royalty-Specific Treaty Provisions Under Article 12

Definition of Royalties (Article 12(3))

The treaty defines "royalties" as payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films and films, tapes or discs for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. This last limb covers know-how licensing — a common feature of South African mining, engineering and agro-processing technology transfers into India.

Article 12(6): Source Rule

Royalties are deemed to arise in the State where the payer is resident, or, if the payer has a PE with which the royalty obligation is connected, in the State where that PE is situated.

Article 12(7): Arm's Length Rule

Where a special relationship between payer and beneficial owner inflates the royalty above an arm's-length amount, only the arm's-length portion qualifies for the 10% cap; the excess is taxed under domestic law, engaging transfer pricing scrutiny.

Domestic-Law Cross-Reference

Independently of the treaty, royalty income of a non-resident is deemed to accrue in India under section 9(6) of the Income-tax Act, 2025 (section 9(1)(vi) of the Income-tax Act, 1961) — the treaty cap operates as a ceiling on top of this domestic deeming provision, not a replacement for it.

Documentation Required to Claim the Reduced Rate

Indian payers may apply the 10% treaty rate to royalties paid to a South African resident only once the recipient has provided the documents below; without them, the payer must withhold at the full domestic rate.

Tax Residency Certificate (TRC)

The South African recipient must obtain a Tax Residency Certificate from the South African Revenue Service (SARS), generally through SARS eFiling, confirming South African tax residency for the relevant year. This is the foundational document 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)

If the TRC does not carry all prescribed particulars (name, status, nationality, South African tax reference number, and period of residential status), the recipient must also file Form 41 electronically. Since 1 October 2023, Form 41 must be filed on the Indian income-tax e-filing portal even by non-residents without an Indian PAN, through a dedicated non-PAN registration category. Treaty benefit at source is available only once the form is actually filed — it is not automatic on the strength of the TRC alone.

Self-Declaration and No-PE Confirmation

The South African recipient should provide a self-declaration confirming beneficial ownership of the income, that no permanent establishment or fixed base exists in India to which the income is attributable, and that the arrangement has genuine commercial substance rather than being structured principally to access the 10% rate.

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), any person paying royalties to a non-resident must deduct tax at source at the time of credit or payment, whichever is earlier. The rate is 10% where the South African recipient's DTAA documentation is complete, or the domestic rate if it is not.

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

Before remitting the payment to South Africa, the Indian payer must file Form 145 electronically. For remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must also issue Form 146, certifying the taxability of the payment, the applicable treaty article and rate, and that TDS has been correctly deducted.

Section 395(1): Lower or Nil Withholding Certificate

If the South African recipient's actual Indian tax liability is expected to be lower than the standard withholding, they — the payee, not the Indian payer — may 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 lower or nil rate. The Indian payer's own route, where warranted, is an application under section 395(2) of the Income-tax Act, 2025 (section 195(2) and (3) of the Income-tax Act, 1961) asking the Assessing Officer to determine the proportion of the remittance chargeable to tax.

Practical Considerations

Because Article 12 has no "make available" restriction and a broad know-how limb, the recurring classification question on this corridor is whether a payment is genuinely a royalty (a right to use IP or equipment) or a service fee falling under fees for technical services — both attract the same 10% cap under this treaty, so the practical stakes of that distinction are lower here than under treaties where FTS and royalties are taxed differently. The distinction still matters for characterising a payment connected to a permanent establishment, and for correctly completing Form 146.

Practical Example

Durban Process Technologies licenses a patented chemical process to an Indian manufacturer for a royalty of 4% of net sales, generating INR 60 lakh in the year.

• Without DTAA: TDS at 20% = INR 12 lakh; Durban Process Technologies receives INR 48 lakh.
• With DTAA (valid TRC and Form 41): TDS at 10% = INR 6 lakh; Durban Process Technologies receives INR 54 lakh.
• Saving: INR 6 lakh on this royalty stream, available every year the licence continues and documentation stays current.

See our India-South Africa DTAA guide for the full treaty picture and our withholding tax rates page for a side-by-side view of dividends, interest, royalties and FTS. Beacon Filing's DTAA advisory team can help structure and document royalty flows to claim this rate correctly.

Frequently Asked Questions

What is the royalty tax rate under the India-South Africa DTAA?

Article 12(2) caps royalty withholding tax at 10% of the gross amount, provided the recipient is the beneficial owner. India's domestic rate without the treaty is 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 10% by the Finance Act 2023.

Does the India-South Africa DTAA have a 'make available' clause?

No. Article 12 contains no make-available requirement for royalties or fees for technical services. The broad definition in Article 12(3) covers copyright, patents, trademarks, designs, secret formulas or processes, equipment use, and know-how, all capped at 10% regardless of whether technical knowledge is actually transferred to the Indian payer.

What happens if the royalty is connected to a permanent establishment in India?

Under Article 12(5), the 10% cap does not apply if the right or property generating the royalty is effectively connected with a permanent establishment the South African beneficial owner has in India. The royalty is then taxed as business profits under Article 7, generally at the 35% foreign-company rate.

What documentation does a South African licensor need?

A Tax Residency Certificate from SARS, Form 41 filed electronically, and a self-declaration of beneficial ownership and no-PE status, plus a copy of the licence agreement. The Indian payer must file Form 145 (and Form 146 for remittances exceeding INR 5 lakh) before remitting.

Does the MLI affect royalty taxation under this treaty?

Yes. As a matched Covered Tax Agreement, the MLI's Principal Purpose Test applies from 1 January 2023 for withholding taxes, alongside India's domestic GAAR and Article 12(2)'s own beneficial-ownership requirement. This treaty has no Limitation of Benefits article and no most-favoured-nation clause.

What if the royalty rate exceeds arm's length?

Under Article 12(7), if a special relationship between payer and recipient inflates the royalty above what independent parties would agree, only the arm's-length portion qualifies for the 10% rate. The excess is taxed under domestic law and may be adjusted under India's transfer pricing rules.