Withholding Tax Rates: India to Bangladesh Under DTAA

India to Bangladesh Withholding Tax Rates Under the DTAA

When an Indian entity pays dividends, interest or royalties to a Bangladeshi resident, tax must be withheld at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-Bangladesh DTAA, signed 27 August 1991 and in force from 27 May 1992, caps these rates well below India's domestic 20% withholding rate — but it has no article at all for fees for technical services, which makes cross-border service payments the single most misunderstood category on this route.

Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), a taxpayer may apply whichever of the domestic rate or the treaty rate is more beneficial. This page uses the treaty's own — shifted — article numbering throughout: dividends sit in Article 11, interest in Article 12, and royalties in Article 13. Article 10 is Associated Enterprises, not dividends.

Rate Matrix at a Glance

Dividend Withholding Rates — Article 11

Article 11(2) of the India-Bangladesh DTAA sets two dividend tiers.

The 10% tier tests capital, not voting rights, and the threshold is 10%, not the 25% found in some other Indian treaties — do not import a different threshold or a different measure of ownership from another country's page. Both tiers sit below India's 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Where the shareholding is effectively connected with a permanent establishment (PE) or fixed base of the Bangladeshi beneficial owner in India, Article 11(4) instead routes the income to Article 7 (business profits) or Article 15 (independent personal services), taxed on a net basis at ordinary rates.

Interest Withholding Rates — Article 12

Article 12(2) caps interest paid to a Bangladeshi beneficial owner at a flat 10% of the gross amount — a single, general cap with no separate reduced tier for banks or financial institutions as such.

Only two Bangladeshi bodies are named on the India-source side of Article 12(3), and the exemption runs in both directions symmetrically — interest arising in Bangladesh paid to the Government of India or the Reserve Bank of India is exempt from Bangladesh tax under the mirror clause, Article 12(3)(b), which is not relevant to India-to-Bangladesh payments covered by this page. There is no payer-side exemption, no export-credit-guarantee limb and no named development-bank list — do not assume any bank or financial institution beyond these two named public bodies qualifies for 0%. The closing sentence of Article 12(3) allows the competent authorities to agree further institutions by mutual agreement, but this session found no evidence such an agreement has been made, so no further institution should be named on this page.

Article 12(4) defines interest broadly — debt-claims of every kind, government securities, bonds, debentures, and attached premiums or prizes — but expressly excludes late-payment penalty charges from the definition. Interest connected with a PE or fixed base in India loses both the 10% cap and the Article 12(3) exemption, since Article 12(5) disapplies "paragraphs (1) to (3)" together, not just the 10% cap.

Royalty Withholding Rates — Article 13

Article 13(2) caps royalty withholding at 10% of the gross amount, provided the recipient is the beneficial owner and a resident of Bangladesh.

Article 13(3) defines royalties broadly: copyright of literary, artistic or scientific work (including films and broadcast tapes), patents, trademarks, designs, secret formulas or processes, and — crucially for this treaty — "the use of, or the right to use, industrial, commercial, or scientific equipment" and "information concerning industrial, commercial or scientific experience". This last limb is what carries equipment-hire and know-how payments into the 10% royalty rate, since there is nowhere else for them to go.

Technical and Consultancy Fees — There Is No FTS Article

This is the point on which most summaries of the India-Bangladesh treaty go wrong. The phrase "fees for technical services" does not appear anywhere in the Convention or its 2013 Protocol. There is no Article 12A, no combined royalty/FTS clause, and no make-available test to satisfy or fail. A payment for genuine technical, managerial or consultancy services — as opposed to equipment hire or the transfer of know-how, which are royalties under Article 13(3) — is taxed, in order:

1. As a royalty first, if it falls within Article 13(3)'s equipment-use or industrial/commercial/scientific-experience limb.
2. Otherwise as business profits under Article 7 — a Bangladeshi enterprise's fees are taxable in India only if attributable to a permanent establishment situated here. Since this treaty also has no services-PE clause, a Bangladeshi consultancy with staff visiting India but no fixed place of business and no dependent agent here has, in most cases, no PE and therefore no Indian tax liability on the fee at all.
3. For individuals, under Article 15 — taxable in Bangladesh unless there is a fixed base in India or presence exceeding 120 days in the previous year or income year.

Article 24, "Income Not Expressly Mentioned", closes the loop by preserving each country's own domestic law for anything the Convention does not expressly address — so where the treaty is silent, India's domestic FTS provisions would otherwise apply, but Article 7's exclusive allocation to the residence State (absent a PE) takes precedence as the "express provision to the contrary" for business profits. Never quote a 10%, 15%, or any other "FTS rate" for Bangladesh — no such rate exists in this treaty.

Permanent Establishment Carve-Out

For dividends, interest and royalties alike, the treaty routes income away from the flat withholding rate and into net-basis taxation under Article 7 or Article 15 wherever the income is effectively connected with a PE or fixed base of the beneficial owner in India: Article 11(4) for dividends, Article 12(5) for interest, and Article 13(4) for royalties. Determining whether a PE exists — including whether the Article 5(2)(h) 183-day construction threshold or the Article 5(4) agency tests are met — is therefore a threshold question before applying any of the rates above.

Capital Gains Treatment

Capital gains are governed by Article 14, not by this article's withholding mechanism, because Article 14 allocates exclusive taxing rights rather than capping a rate. Article 14(1) taxes gains only in the State where the capital asset is situated; Article 14(2) deems the situs of company shares to be the State of incorporation, so India taxes gains on shares of an Indian company exclusively, with no land-rich test, no minimum-shareholding threshold and no grandfathering date; and Article 14(3) taxes gains on ships or aircraft in international traffic only in the operating enterprise's own State. See our India-Bangladesh DTAA guide for the full capital-gains discussion.

How to Apply the Reduced Rates

Tax Residency Certificate

The Bangladeshi resident must obtain a valid Tax Residency Certificate evidencing residence for the relevant year, as required by section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961). The treaty's own competent authority for Bangladesh is the National Board of Revenue or its authorised representative (Article 3(1)(j)); this page does not identify a specific certificate-issuing office within Bangladesh, since that detail could not be independently verified.

Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41, giving status, tax identification, and the period of residence. Treaty relief at source is available only once this declaration is on file.

Form 145 (formerly Form 15CA)

The Indian payer files Form 145 (remittance reporting) before making the payment, applying the treaty rate once the TRC and Form 41 are in hand. A chartered accountant's certificate on Form 146 (formerly Form 15CB) is not needed for every outward remittance — it is required only for Part C of Form 145, that is a taxable remittance above INR 5 lakh made without a section 395 certificate.

Lower Withholding Certificate

Where there is uncertainty about the applicable rate — for example, whether a payment is a royalty or an untaxable service fee — the two parties have different routes. The Bangladeshi payee applies under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate from the Assessing Officer authorising deduction at a lower rate or no deduction. The Indian payer applies under section 395(2) (section 195(2) of the Income-tax Act, 1961), where it considers that the whole of the sum would not be chargeable in the recipient's hands, for a determination of the proportion of the sum chargeable to tax.

Worked Examples

Example 1: Dividend to a 12%-shareholding Bangladeshi parent

A Bangladeshi holding company owns 12% of the capital of its Indian subsidiary and receives a dividend of INR 80,00,000. Because the holding meets the 10%-of-capital threshold, Article 11(2)(a) applies: withholding is capped at 10%, i.e. INR 8,00,000, rather than the 15% residual rate (INR 12,00,000) or the 20% domestic rate (INR 16,00,000).

Example 2: Royalty versus pure consultancy fee

An Indian company pays a Bangladeshi engineering firm INR 25,00,000 for a licence to use a patented manufacturing process, and a separate INR 25,00,000 for pure technical consultancy advice, with no equipment or know-how transferred and no PE for the Bangladeshi firm in India. The licence fee is a royalty under Article 13(3): Indian withholding is capped at 10% (INR 2,50,000) against a domestic-law starting point of 20% (INR 5,00,000). The consultancy fee, however, is neither a royalty nor covered by any FTS article — it is a business profit under Article 7, and with no PE in India, India has no taxing right over it at all, notwithstanding that section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 would otherwise treat it as FTS taxable at 20% domestically.

Domestic Rates vs Treaty Rates Comparison

Domestic rates under section 207(1) and section 207(2) of the Income-tax Act, 2025 carry applicable surcharge and health-and-education cess on top; the DTAA rates above are final, all-inclusive rates with no surcharge or cess added.

Common Mistakes and Compliance Tips

Mistake 1: Quoting an FTS rate for Bangladesh

There is no fees-for-technical-services article in this treaty. Characterise the payment as a royalty (Article 13, if it is equipment hire or know-how), or as a business profit under Article 7 gated by a PE — never as a flat-rate FTS withholding.

Mistake 2: Using OECD-standard article numbers

Citing "Article 10" for dividends will point to Associated Enterprises in this treaty. Dividends are Article 11, interest is Article 12, and royalties are Article 13.

Mistake 3: Assuming a bank or institutional interest exemption beyond the two named bodies

Article 12(3) names only the Government of Bangladesh, the Bangladesh Bank, and their Indian mirrors. There is no export-credit-agency or development-bank exemption to import from another treaty.

Mistake 4: Missing the PE test on royalties and dividends

If the Bangladeshi recipient has a PE or fixed base in India connected with the income, none of the flat rates apply — the income is taxed as business profits under Article 7 (or Article 15 for independent personal services) on a net basis.

Mistake 5: Skipping Form 41 or the TRC

Without a valid TRC and a filed Form 41, the payer must withhold at the 20% domestic rate under section 207(1) or section 207(2) of the Income-tax Act, 2025, leaving the Bangladeshi recipient to claim a refund by filing an Indian tax return.

For the full treaty background, including capital gains, PE rules and dual-residence tie-breakers, see our India-Bangladesh DTAA guide.

Frequently Asked Questions

What is the withholding tax rate on dividends from India to Bangladesh?

Article 11(2) sets a 10% rate where the beneficial owner is a company holding at least 10% of the paying company's capital directly, and 15% in all other cases — both well below India's 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025. Where the shareholding is effectively connected with a permanent establishment in India, Article 11(4) routes the dividend to Article 7 or Article 15 instead, taxed on a net basis rather than by flat withholding.

What is the withholding tax rate on royalties from India to Bangladesh?

10%, under Article 13(2), provided the recipient is the beneficial owner and a Bangladeshi resident. This covers copyright, patents, trademarks, secret processes, and — importantly for this treaty — equipment-hire and know-how payments, which fall within Article 13(3) and are taxed as royalties rather than as any kind of technical-service fee, since no separate services article exists.

Is there a fees-for-technical-services rate between India and Bangladesh?

No. The treaty has no FTS article at all — the phrase does not appear anywhere in the Convention or its 2013 Protocol. Pure technical, managerial or consultancy fees are business profits under Article 7 and are taxable in India only if the Bangladeshi enterprise has a permanent establishment here; without one, India has no taxing right over the fee under the treaty.

Is interest paid to the Bangladesh Bank exempt from Indian withholding?

Yes. Article 12(3)(a) exempts interest arising in India and paid to the Government of Bangladesh or the Bangladesh Bank from Indian tax entirely. No other institution is named in this exemption, and there is no separate exemption for commercial banks, export-credit agencies or development-finance institutions, so this narrow exemption should never be extended by analogy to other lenders.

What documents are required to apply the reduced DTAA rate?

A Tax Residency Certificate evidencing Bangladeshi residence for the relevant year, required under section 159(8) of the Income-tax Act, 2025, and an electronically filed Form 41 (formerly Form 10F) confirming status, tax identification and the residential-status period. The Indian payer must also file Form 145 before remitting the payment, adding a chartered accountant's certificate on Form 146 only where the taxable remittance exceeds INR 5 lakh and no section 395 certificate is held.

Can India tax a Bangladeshi consultant's service fee if there is no permanent establishment?

Generally no. Because there is no FTS article, a pure service fee is a business profit under Article 7, taxable in India only if attributable to a permanent establishment here; with no PE, the fee escapes Indian tax under the treaty even though domestic law would otherwise treat it as taxable FTS at 20%. Equipment-hire or know-how payments are treated differently, as royalties under Article 13.