Withholding Tax Rates: India to Hungary Under DTAA

India to Hungary Withholding Tax Rates Under DTAA

When an Indian entity pays a Hungarian resident — for dividends, interest, royalties, or fees for technical services — tax must be withheld at source. Absent the treaty, India's domestic rate under the Income-tax Act, 2025 is 20% for each of these income types. The India-Hungary DTAA, signed 3 November 2003 and in force from 4 March 2005, caps all four categories at a flat 10% of the gross amount, and exempts a defined set of interest payments entirely.

Taxpayers may apply whichever rate is more beneficial — domestic or treaty — under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961). This page walks through each income category, the compliance steps, and the mistakes most often made on India-Hungary payments. For the full treaty picture — permanent establishment, capital gains, and dispute resolution — see our India-Hungary DTAA guide.

Dividend Withholding Rates

Under Article 10 of the India-Hungary DTAA, dividends paid by an Indian company to a Hungarian beneficial owner carry a maximum withholding of 10% of the gross amount — a single flat rate with no shareholding-based tier and no exempt category anywhere in Article 10(2).

There is no participation-based relief that reduces the Indian withholding rate for a substantial Hungarian shareholder — every dividend to a Hungarian beneficial owner is withheld at 10%, full stop. A Protocol clause historically capped the erstwhile Dividend Distribution Tax at 10% of the gross dividend; since DDT's abolition from 1 April 2020, dividends are taxed directly in the shareholder's hands and the ordinary Article 10(2) cap applies without needing that gloss. India's domestic GAAR and the beneficial-ownership requirement in Article 10(2) can still deny the 10% rate where an arrangement lacks commercial substance.

Interest Withholding Rates

Article 11 caps ordinary interest paid to a Hungarian beneficial owner at 10% — there is no separate, lower rate for banks or financial institutions.

Only two institutions are named anywhere in Article 11(3): the Hungarian Exim Bank and (on the reverse, Hungary-to-India direction) the Export-Import Bank of India. Do not import the exempt-institution list from India's German or Czech treaties — the Reserve Bank of India appears here only generically, as "the Central Bank of the other Contracting State," and there is no National Housing Bank, IFCI, IDBI or SIDBI mention in this treaty at all. Article 11(3)(v) does leave room for the two States to add further exempt banks or Government financial institutions by mutual agreement.

The most commercially useful — and most overlooked — limb is Article 11(3)(iii)(b): an ordinary Hungarian commercial bank or lender qualifies for the full 0% exemption if the loan or credit it extends to an Indian borrower is "made, guaranteed or insured" by the Hungarian Exim Bank, even though the lender itself is not a listed institution. Indian payers on such Exim-Bank-backed export credit facilities frequently withhold 10% by default when the correct rate is nil.

Article 11(4) defines "interest" broadly but expressly excludes late-payment penalty charges, and there is no domestic-law assimilation clause. If the Hungarian lender has a PE in India and the interest is effectively connected with it, Article 11(5) instead taxes the interest as business income at the standard 35% foreign-company rate. One further quirk: under Article 8(2), interest on a shipping or airline enterprise's bank accounts — other than term deposits — connected with operating ships or aircraft is treated as shipping profit and falls outside Article 11 altogether; term-deposit interest of the same enterprise stays inside the ordinary Article 11 rules.

Royalty and FTS Withholding Rates

Article 12 covers both royalties and fees for technical services in a single combined article, with one 10% cap and no separate FTS article.

The royalty definition is the wide, post-2001 Indian-model form, expressly covering transmission by satellite, cable, optic fibre or similar technology, and equipment royalties — there is no equipment carve-out. The FTS definition covers "payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel," excluding only payments already covered by Articles 14 and 15 (personal services). There is no "make available" limb here — unlike India's treaties with the US, UK, Singapore or the Netherlands — so a Hungarian firm's routine managerial support or personnel secondment to an Indian client falls squarely within FTS at 10%, whether or not any technical knowledge is actually transferred.

Capital Gains Treatment

Article 13 does not set a maximum rate — it allocates the right to tax between the two States. Gains on immovable property in India are taxable in India (13(1)). Gains on shares of a company that is principally land-rich sit at Article 13(2) — not 13(4), the numbering used in several other Indian treaties. Gains on any other shares of an Indian company held by a Hungarian resident fall under Article 13(5), giving India an unconditional right to tax at domestic capital-gains rates, with no minimum shareholding, holding period, or grandfathering date. Gains from ships or aircraft in international traffic are taxable only in the operating enterprise's State of residence (13(4)) — not by place of effective management. Article 13(3) covers gains on a PE's movable property, including alienation of the PE itself.

How to Apply Reduced Rates

Tax Residency Certificate

The Hungarian resident obtains a certificate of tax residence (illetőségigazolás) from Hungary's National Tax and Customs Administration (NAV). Any NAV directorate may issue it, and NAV issues the residence certificate in Hungarian and English, free of charge. The statutory limit for issuing tax-authority certificates is six calendar days, and NAV issues it immediately for an in-person application.

Form 41 (formerly Form 10F)

The Hungarian resident electronically files Form 41 on the Indian income-tax portal, giving status, tax identification number, period of residence, and whether an Indian PE exists. PAN is optional under a non-PAN registration route.

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

The Indian payer files Form 145 before remitting; for taxable remittances above ₹5 lakh without a lower-deduction certificate, a Chartered Accountant must also certify Form 146.

Lower or Nil Deduction Certificate

Where the applicable rate is uncertain, the non-resident may apply 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 confirming the correct rate in advance.

Domestic Rates vs Treaty Rates Comparison

Worked example — FTS payment. An Indian company pays a Hungarian consultancy ₹60,00,000 for technical consultancy, with no PE in India. Under Article 12(2), the payer withholds 10% — ₹6,00,000 — and remits ₹54,00,000. At the domestic rate under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), 20% — ₹12,00,000 — would be withheld, leaving only ₹48,00,000 net. The treaty saves the Hungarian consultancy ₹6,00,000.

Worked example — exempt interest. An Indian borrower pays annual interest equivalent to ₹20,00,000 to a Hungarian bank on a foreign-currency credit guaranteed by the Hungarian Exim Bank. Article 11(3)(iii) exempts this in full — 0% instead of the treaty's own 10% (Article 11(2)) or the 20% rate on foreign-currency debt interest under section 207(1) (Table, Sl. No. 3) — so the entire ₹20,00,000 reaches the lender, provided the TRC, Form 41, and evidence of the Exim Bank guarantee are on file before payment.

Common Mistakes and Compliance Tips

Mistake 1: Assuming a dividend tier for large shareholdings

There is no such tier. Article 10(2) withholds at a flat 10% regardless of how large the Hungarian shareholder's stake is.

Mistake 2: Importing the wrong exempt-interest list

Only the Hungarian Exim Bank and the Export-Import Bank of India are named in Article 11(3). Do not apply the German or Czech treaty's list of exempt Indian institutions (RBI, IFCI, IDBI, EXIM Bank, NHB, SIDBI) to Hungary.

Mistake 3: Missing the resident-lender exemption

A Hungarian commercial bank's interest is exempt if its loan to the Indian borrower is guaranteed by the Hungarian Exim Bank — even though the bank itself is not a named institution. Confirm the guarantee link before defaulting to 10%.

Mistake 4: Assuming a make-available test applies to FTS

It does not. Article 12's FTS definition has no make-available limb, so managerial support and personnel secondment both fall within the 10% FTS rate.

Mistake 5: Relying on the Protocol's MFN clause

The Protocol's Most-Favoured-Nation clause could, in principle, import a lower rate or narrower scope from an OECD-member treaty, but it binds India only and no CBDT notification giving it effect has been identified. Do not apply a rate below 10% or a make-available FTS condition to Hungary on this basis.

For the complete treaty picture — permanent establishment, capital gains, and dispute resolution — see our India-Hungary DTAA guide. See also our glossary entries on permanent establishment and withholding tax, and our broader DTAA master guide.

Frequently Asked Questions

What is the withholding tax rate on payments from India to Hungary?

The India-Hungary DTAA caps Indian withholding tax at a flat 10% of the gross amount on all four main heads — dividends under Article 10(2), interest under Article 11(2), and royalties and fees for technical services under Article 12(2). That is half India's 20% domestic rate on each. There is no shareholding tier on dividends and no reduced bank tier on interest.

Which interest payments from India to Hungary are exempt from withholding tax?

Article 11(3) gives a full exemption where the interest is beneficially owned by the Government of Hungary, a Hungarian political sub-division or local authority, the Central Bank of Hungary, or the Hungarian Exim Bank. It also exempts a Hungarian resident lender where the loan or credit is made, guaranteed or insured by the Hungarian Exim Bank. An ordinary commercial loan without that Exim Bank link still bears 10%.

Does a make-available test limit fees for technical services under the India-Hungary treaty?

No. Article 12(3)(b) defines fees for technical services as payment for any managerial, technical or consultancy services, including the provision of services by technical or other personnel, and excludes only payments already covered by Articles 14 and 15. There is no make-available condition of the kind found in India's treaties with the US, UK, Singapore and the Netherlands, so routine managerial support and personnel secondment are taxed at 10%.

What documents does a Hungarian recipient need to claim the 10% treaty rate?

A certificate of tax residence (illetőségigazolás) from Hungary's National Tax and Customs Administration, plus Form 41 (formerly Form 10F) e-filed on the Indian income-tax portal declaring beneficial ownership and whether an Indian permanent establishment exists. PAN is optional because a non-PAN registration route exists. The Indian payer files Form 145 before remitting, and Form 146 only for a taxable remittance above ₹5 lakh made without a lower-deduction certificate.

Can the Protocol's MFN clause reduce the rate below 10%?

Not on its own. The Protocol's most-favoured-nation clause covers Articles 10, 11 and 12 and can import a lower rate or a more restricted scope that India grants a third State which is an OECD member, but it binds India only. No CBDT notification giving the clause effect for Hungary has been identified, and following the Supreme Court's 2023 Nestlé ruling such a notification is required before a lower rate or a make-available limb can be applied.

What happens if the Hungarian recipient has a permanent establishment in India?

The 10% gross caps stop applying. Articles 10(4), 11(5) and 12(4) route dividend, interest, royalty and FTS income that is effectively connected with an Indian permanent establishment or fixed base to Article 7 or Article 14 instead, where it is taxed on a net basis as business profits at the 35% foreign-company rate.