Royalty Tax Rate Between India and Thailand Under DTAA

Quick answer: Under Article 12(2) of the India-Thailand DTAA (signed 29 June 2015, in force 13 October 2015, effective in India from 1 April 2016), royalties paid to a Thai beneficial owner are capped at 10% of the gross amount -- half of India's 20% domestic rate under section 207(2) of the Income-tax Act, 2025. Article 12(3) defines royalties broadly to include copyright, patents, trademarks, secret processes, and -- distinctively -- the use of industrial, commercial, or scientific equipment, so equipment rental is taxed as a royalty rather than as ordinary business income. Claiming the rate requires a Tax Residency Certificate from Thailand's Revenue Department and Form 41.

Key takeaways:

• Flat 10% DTAA royalty rate vs 20% domestic rate under section 207(2) -- a 50% reduction
• Royalties expressly include the use of industrial, commercial, or scientific equipment -- equipment rental is a royalty, not business income, under this treaty
• No separate FTS article exists in this treaty -- service fees are covered on a different page, not here
• The definition also covers cinematograph film and radio/TV broadcasting tapes
• The MLI's Principal Purpose Test applies -- the treaty is a matched Covered Tax Agreement

Royalty Tax Rate Between India and Thailand

The India-Thailand DTAA, signed at Bangkok on 29 June 2015, in force from 13 October 2015 and effective in India from 1 April 2016, caps the withholding tax on royalties at 10% of the gross amount under Article 12(2) -- half of 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).

Royalty flows between India and Thailand span technology licensing, franchise and trademark arrangements in food and hospitality, and industrial equipment leasing in manufacturing and logistics -- sectors where the two economies are closely linked. Beacon Filing's tax advisory team helps Thai licensors and Indian licensees apply the treaty correctly.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Absent the treaty, royalties paid to a non-resident are taxed at 20% (plus surcharge and cess) 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.

DTAA Rate (With Treaty)

Article 12(2) limits India's tax on royalties paid to a Thai beneficial owner to "10 per cent of the gross amount of the royalties." The rate is a flat ceiling with no distinction by category of royalty -- copyright, patent, trademark, or equipment use are all taxed identically.

Effective Tax Savings

An Indian manufacturer paying a Thai licensor INR 80 lakh a year in trademark and know-how royalties saves INR 8 lakh in withholding tax under the treaty (10% = INR 8 lakh, versus 20% = INR 16 lakh domestically) -- INR 72 lakh net to the licensor instead of INR 64 lakh.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The Thai recipient must be the beneficial owner of the royalty -- the true economic recipient, not an intermediary contractually bound to pass the payment on. IP-holding structures with no genuine functions, assets, or risks in Thailand are vulnerable to challenge on this basis.

Tax Residency

The licensor must be a resident of Thailand under Article 4, evidenced by a Tax Residency Certificate from the Revenue Department of Thailand.

Anti-Abuse Rules: MLI Principal Purpose Test (No LOB Article)

India and Thailand have both ratified the MLI and matched the India-Thailand DTAA as a Covered Tax Agreement, so the Principal Purpose Test applies to royalty arrangements as much as to any other treaty benefit. The treaty has no Limitation of Benefits article, so the PPT and India's domestic GAAR (effective April 2017) are the operative checks on IP-licensing structures routed through Thailand mainly to access the 10% rate.

No Permanent Establishment Connection

Under Article 12(4), the 10% cap does not apply if the Thai beneficial owner carries on business in India through a permanent establishment (or a fixed base for independent services) and the right or property generating the royalty is effectively connected with it. The royalty is then taxed as business profits under Article 7 or Article 14, at the applicable corporate rate -- 35% for a foreign company, plus surcharge and cess -- rather than at 10%.

Royalty-Specific Treaty Provisions Under Article 12

Definition of Royalties (Article 12(3))

The treaty defines "royalties" as payments "for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film, or films or tapes used for television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." The explicit reference to industrial, commercial, or scientific ("ICS") equipment is a distinctive feature -- it means straightforward equipment rental and leasing payments to a Thai lessor are taxed as royalties under Article 12, not as business profits under Article 7, even where no PE exists.

Article 12(1): Residence State Taxation

Royalties arising in one state and paid to a resident of the other "may be taxed in that other State" -- the residence country's primary right, alongside the source country's 10% capped right under paragraph 2.

Article 12(2): Source State Taxation (10% Cap)

The core operative provision, capping India's (or Thailand's) tax at 10% of the gross royalty where the recipient is the beneficial owner.

Article 12(4): Permanent Establishment Exception

Where the right or property generating the royalty is effectively connected with a PE or fixed base the beneficial owner has in the state where the royalty arises, Article 12 does not apply, and Article 7 or Article 14 governs instead.

Article 12(5): Where a Royalty Is Treated as Arising

Article 12(5) fixes the source of the royalty: royalties are deemed to arise in a Contracting State when the payer is "that State itself, a political sub-division, a local authority, or a resident of that State" -- a wider formulation than the interest source rule in Article 11(6), which names only the payer's residence. Where the payer has a permanent establishment or fixed base in connection with which the liability to pay the royalty was incurred, and that permanent establishment or fixed base bears the royalty, the royalty is deemed to arise where the permanent establishment or fixed base is situated instead. This is what brings a royalty borne by the Indian branch of a foreign licensee within India's 10% capped taxing right.

Article 12(6): Arm's Length Rule

Where a royalty exceeds the amount that would have been agreed at arm's length because of a special relationship between payer and licensor, only the arm's-length portion qualifies for the 10% rate. The excess is taxable under domestic law and engages India's transfer pricing rules for related-party licensing.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC)

A TRC from the Revenue Department of Thailand, confirming Thai tax residency for the relevant year, is 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 omits prescribed details, Form 41 must be filed electronically on the Indian Income Tax portal, even where the licensor has no Indian PAN.

Self-Declaration and Licence Agreement

A self-declaration of beneficial ownership and no-PE status, together with a copy of the underlying licence, franchise, or equipment-rental agreement, supports the Indian payer's TDS position.

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 TDS at 10% (with valid treaty documentation) or 20% (without it) at the time of payment or credit, whichever is earlier.

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

The Indian payer must file Form 145 electronically before remitting the royalty, and obtain a Chartered Accountant's certificate in Form 146 for remittances exceeding INR 5 lakh.

Section 395(1): Lower Withholding Certificate

Where the actual tax liability is expected to be lower than the deductible amount, the Thai licensor can apply for a lower or nil withholding certificate under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961).

Common Issues in Practice

Equipment Royalties vs Business Income

Because Article 12(3) expressly extends to "industrial, commercial or scientific equipment," Thai lessors renting machinery, containers, or specialised equipment to Indian businesses should expect their rental income to be withheld at 10% as a royalty, not assessed as ordinary business profits requiring a PE. This is more favourable than treaties that leave equipment leasing to fall under business profits (Article 7), where tax applies only if a PE exists but potentially at a higher effective corporate rate.

Software Payments

Whether software licence fees constitute a "royalty" under Article 12(3) depends on the substance of the transaction. Following the Supreme Court's ruling in Engineering Analysis Centre of Excellence, payments for the mere resale or use of shrink-wrapped, off-the-shelf software without any transfer of copyright rights are not royalty income. Customised software, source-code licensing, or arrangements granting the Indian licensee a right to reproduce or modify the software may still qualify as royalty under the treaty's broad definition.

Surcharge and Cess Over the Treaty Rate

The 10% treaty rate under Article 12(2) is generally understood by tribunals as a ceiling inclusive of surcharge and cess, though the tax administration has not always applied this consistently, making it a recurring point of dispute in royalty assessments.

Practical Examples and Calculations

Example 1: Trademark and Know-How Licence

A Thai food-and-beverage franchisor licenses its trademark and recipes to an Indian franchisee for INR 60 lakh a year in royalties.

• Without DTAA: TDS at 20% = INR 12 lakh.
• With DTAA: TDS at 10% = INR 6 lakh.
• Annual saving: INR 6 lakh.

Example 2: Equipment Rental from a Thai Lessor

A Thai company leases specialised packaging machinery to an Indian manufacturer for INR 40 lakh a year. Under Article 12(3), this rental is a royalty, not business income, so it is withheld at 10% (INR 4 lakh) rather than being assessed only if the Thai lessor has a PE in India.

Example 3: Royalty Exceeding Arm's Length

An Indian subsidiary pays its Thai parent INR 50 lakh in brand royalties, but India's transfer pricing officer determines the arm's-length royalty is INR 35 lakh. The 10% treaty rate applies to the arm's-length INR 35 lakh, while the excess INR 15 lakh is taxed under domestic law and may be disallowed as a deduction for the Indian subsidiary.

For related provisions, see our India-Thailand DTAA complete guide and withholding tax rates page. Beacon Filing's tax advisory team can help structure licensing and equipment-rental arrangements between India and Thailand.

Frequently Asked Questions

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

Under Article 12(2) of the India-Thailand DTAA, the maximum withholding tax on royalties is 10% of the gross amount, provided the recipient is the beneficial owner. The domestic Indian rate without the treaty is 20% under section 207(2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), doubled from 10% by the Finance Act 2023.

Does the royalty definition cover equipment rental?

Yes. Article 12(3) explicitly includes "the use of, or the right to use, industrial, commercial or scientific equipment" within the definition of royalties. This means a Thai company renting machinery or equipment to an Indian business is taxed at the 10% royalty rate, rather than only when it has a permanent establishment in India.

Is there a "make available" clause for technical services in this royalty article?

No, and more fundamentally, the India-Thailand DTAA has no separate fees-for-technical-services article at all, so a "make available" concept does not arise here. Managerial, technical, and consultancy fees paid to Thai residents are treated as business profits or independent personal services, not as royalties.

What documentation does a Thai licensor need to claim the reduced rate?

A Tax Residency Certificate from the Revenue Department of Thailand, Form 41 filed electronically on the Indian Income Tax portal, a self-declaration of beneficial ownership and no-PE status, and a copy of the licence or rental agreement. The Indian payer must also file Form 145, and Form 146 for amounts exceeding INR 5 lakh.

How does the MLI affect royalty taxation under this treaty?

Both India and Thailand have ratified the MLI and matched the India-Thailand DTAA as a Covered Tax Agreement, so the Principal Purpose Test applies. Licensing structures routed through Thailand mainly to access the 10% royalty rate, without genuine business substance, can be challenged under the PPT or India's domestic GAAR.

What happens if the royalty exceeds the arm's-length amount?

Only the arm's-length portion of the royalty qualifies for the 10% treaty rate. The excess is taxable under domestic law and may be disallowed as a deduction for the Indian payer under transfer pricing rules -- a common issue in related-party licensing arrangements.