Withholding Tax Rates: India to Kenya Under DTAA

India to Kenya Withholding Tax Rates Under the DTAA

When an Indian entity pays a Kenyan resident for dividends, interest, royalties, or fees for management, professional and technical services (FTS), 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-Kenya DTAA, signed on 11 July 2016 and in force since 30 August 2017, caps every one of these four income categories at a flat 10% of the gross amount — half of India's 20% domestic rate — with no shareholding tiers, no bank-interest tier, and no other reduced-rate category.

Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the taxpayer may apply whichever of the domestic rate or the treaty rate is more beneficial. The table below summarises every rate this treaty provides.

Dividend Withholding Rates

Under Article 10 of the India-Kenya DTAA, dividends paid by an Indian company to a Kenyan beneficial owner are capped at 10% of the gross amount: Article 10(2) provides that the tax "shall not exceed 10 per cent of the gross amount of the dividends". There is no shareholding-based tier — the 10% cap applies whether the Kenyan shareholder holds 1% or 100% of the Indian company, and there is no 0% category anywhere in this treaty.

If the dividend is effectively connected with a permanent establishment or fixed base the Kenyan recipient has in India, Article 10(4) routes the income instead to Article 7 (business profits) or Article 15 (independent personal services), taxable at the ordinary foreign-company rate of 35% (plus applicable surcharge and cess) rather than the flat 10%.

Interest Withholding Rates

Article 11(2) caps interest at 10% of the gross amount for a Kenyan beneficial owner. Article 11(3) then fully exempts interest that is both derived and beneficially owned by: the Government, a political subdivision, or local authority of the other state; in India's case, the Reserve Bank of India and the Export-Import Bank of India; in Kenya's case, the Central Bank of Kenya; or any other government financial institution the two competent authorities agree to add through an exchange of letters.

This exemption list is narrow — three named institutions plus the general government limb. It does not extend to Kenyan commercial banks, non-bank financial institutions, or export-credit agencies generally; those recipients remain subject to the flat 10% cap, not an exemption. Article 11(3)(c) allows the two competent authorities to add other government financial institutions by exchange of letters, but no such addition is confirmed to have taken place.

The 20% domestic comparator applies to foreign-currency interest under section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Rupee-denominated interest paid to a non-resident, such as on an NRO deposit, instead falls outside that special rate and is withheld at the rates in force under section 393(2), which can reach 30% or 35% depending on the recipient's status — underscoring how large the treaty's savings can be even before comparing to the flat 10%. Interest connected with a PE is taxed as business profits under Article 7 at the standard foreign-company rate (Article 11(5)).

Royalty Withholding Rates

Article 12(2) caps royalties at 10% of the gross amount, covering payments for the use of, or right to use, copyrights of literary, artistic, or scientific works (including films and broadcasting tapes), patents, trademarks, designs, models, secret formulas or processes, industrial, commercial, or scientific equipment, and industrial, commercial, or scientific know-how (Article 12(3)).

This is half the 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 connected with a PE fall under Article 7 instead (Article 12(4)).

Fees for Management, Professional and Technical Services Withholding Rates

This treaty is unusual among India's tax treaties in giving FTS its own article — Article 13 — rather than folding it into the royalties article. Every article number after royalties therefore runs one higher than the layout most Indian treaties use: independent personal services is Article 15, the mutual agreement procedure is Article 26, and limitation of benefits is Article 29 — and it means capital gains is Article 14, not Article 13.

Article 13(2) caps FTS at 10% of the gross amount. Article 13(3) defines the term broadly as payments "in consideration for any services of a managerial, technical, professional or consultancy nature including the provision of services of technical or other personnel" — other than payments to an employee of the payer or amounts already falling under Articles 15 or 16. Three drafting points matter for withholding purposes: there is no make-available test, so a fee is taxable as FTS even if no technical knowledge or skill is transferred to the Indian payer; "professional" services are expressly named, going beyond the managerial-and-technical wording of many other Indian FTS articles; and the secondment of personnel is expressly covered, so staffing and deputation fees to a Kenyan counterparty are FTS, not exempt reimbursements.

Article 13(5) sources the fee to the state where the payer is resident, a political subdivision, a local authority, or where a permanent establishment bears the cost — note this differs from the royalty and interest source rules, which also catch a fixed base bearing the cost; Article 13(5) does not. FTS connected with a PE is taxed under Article 7 (Article 13(4)).

Capital Gains Treatment

Article 14 — not Article 13 — governs capital gains under this treaty. Immovable property is taxed where situated (14(1)); PE or fixed-base assets, including alienation of the PE itself, are taxed in the PE state (14(2)); ships, aircraft, and related movables are taxable only at the place of effective management (14(3)); shares of a company, or an interest in a partnership, trust, or estate, whose property consists "directly or indirectly principally of immovable property" in a state may be taxed there (14(4)) — tested only by the word "principally", with no percentage threshold or look-back period; all other shares in a resident company may be taxed at source unconditionally (14(5)), with no land-rich test, minimum holding, or grandfathering date; residual gains are taxable only at the alienator's residence (14(6)).

No withholding tax applies to capital gains as such. A Kenyan seller of Indian company shares must independently discharge Indian capital gains tax under the applicable capital-gains provisions of the Income-tax Act, 2025, since Article 14(4) and 14(5) confirm India's taxing right rather than setting a rate cap for shares.

How to Apply the Treaty Rate

To apply the 10% treaty rate instead of the 20% domestic rate, the Kenyan recipient must obtain a Tax Residency Certificate confirming Kenyan residence and electronically file Form 41 (formerly Form 10F) with a self-declaration of beneficial ownership and the absence of a PE in India. Because Kenya's fiscal year runs from 1 January while India's runs from 1 April, a Kenyan TRC will typically be issued on a calendar-year basis and should be checked for coverage of the relevant Indian financial year. The Indian payer must then file Form 145 (formerly Form 15CA) before remitting the payment. Form 146, a Chartered Accountant's certificate, is needed only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without an Assessing Officer's certificate under section 395. Where there is uncertainty about the applicable rate, the recipient can 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 specifying the exact rate. Where the payer and recipient are associated enterprises, the payment must also be reported in Form 48 (formerly Form 3CEB).

Worked Examples

Interest to the Central Bank of Kenya versus a private lender: An Indian company pays ₹1,00,00,000 in interest to a private Kenyan corporate lender. At the general treaty rate of 10% (Article 11(2)), withholding is ₹10,00,000, against a domestic rate of 20% plus 4% cess (20.8%) that would otherwise be ₹20,80,000 — a saving of ₹10,80,000. If the same ₹1,00,00,000 is instead paid as interest to the Central Bank of Kenya, Article 11(3) exempts it entirely: withholding is nil.

Professional fees with personnel secondment: An Indian company pays a Kenyan accounting firm ₹40,00,000 for professional accounting services and the secondment of two accountants — both expressly covered by Article 13(3)'s "professional" and "personnel" language, with no make-available test to satisfy. Withholding at the treaty rate of 10% is ₹4,00,000, against a domestic liability at 20.8% of ₹8,32,000 — a saving of ₹4,32,000.

Domestic Rates vs Treaty Rates Comparison

Domestic rates under section 207(1) and section 207(2) are further increased by applicable surcharge and health and education cess (4%). The DTAA rate of 10% is the final rate — no surcharge or cess is added on top — so the effective savings can exceed 50% once surcharge and cess are factored in.

Common Mistakes and Compliance Tips

Mistake 1: Citing Article 13 for capital gains

Because FTS occupies Article 13 in this treaty, capital gains is Article 14. Citing Article 13 for a share-sale query will point to the wrong provision entirely.

Mistake 2: Applying a make-available test to FTS

Article 13(3) has no make-available requirement. Withholding at a lower rate on the assumption that no technology was "made available" is incorrect — the fee is taxable as FTS regardless.

Mistake 3: Treating personnel secondment as an exempt reimbursement

Article 13(3) expressly covers "the provision of services of technical or other personnel." Deputation and staffing fees to a Kenyan counterparty are FTS, subject to 10% withholding, not a cost reimbursement outside the treaty's scope.

Mistake 4: Assuming a bank tier or a percentage land-rich threshold

There is no reduced rate for ordinary commercial-bank interest beyond the flat 10%, and Article 14(4)'s land-rich test uses only the word "principally" — importing a 50% threshold from another Indian treaty is incorrect here.

Mistake 5: Relying on the MLI's Principal Purpose Test

Kenya's outstanding Article 35(7) reservation means no MLI provision, including the Principal Purpose Test, currently applies to this treaty. Anti-abuse challenges rely on treaty Article 29 and India's domestic GAAR instead.

For a complete overview of the India-Kenya tax treaty, see our comprehensive DTAA guide.

Frequently Asked Questions

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

Under Article 10(2) of the India-Kenya DTAA, dividends are capped at a flat 10% of the gross amount, regardless of the Kenyan shareholder's holding percentage. This is half of India's 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025, with no surcharge or cess added on the treaty rate.

Is there a reduced rate for interest paid to Kenyan banks or financial institutions?

No. The treaty has no separate bank tier — Article 11(2) caps all general interest at a flat 10%. Only interest paid to the Government, a political subdivision or local authority, the Reserve Bank of India, the Export-Import Bank of India, or the Central Bank of Kenya is fully exempt under Article 11(3).

What is the FTS rate under the India-Kenya DTAA, and how broad is its definition?

Fees for management, professional and technical services are capped at 10% under Article 13(2). The definition in Article 13(3) is broad: it covers managerial, technical, professional, and consultancy services and the provision of technical or other personnel, with no make-available requirement.

How are capital gains on Indian company shares taxed for a Kenyan resident?

Article 14(5) lets India tax a Kenyan resident's gains on shares of an Indian company unconditionally, with no land-rich test, minimum holding, or grandfathering date. Article 14(4) separately covers land-rich companies, tested only by the word "principally", with no percentage threshold.

What documents are needed to apply the treaty rate instead of the domestic rate?

The Kenyan recipient needs a Tax Residency Certificate and an electronically filed Form 41 (formerly Form 10F) confirming status and beneficial ownership. The Indian payer must file Forms 145 and 146 (formerly Forms 15CA and 15CB) before remitting the payment, with Form 146 needed only for Part C of Form 145: a taxable remittance above INR 5 lakh made without a section 395 certificate.

Does the MLI's Principal Purpose Test apply to payments made under this treaty?

Not yet. Although both India and Kenya have listed this treaty as a Covered Tax Agreement, Kenya's outstanding Article 35(7) reservation means no MLI provision has entered into effect. Anti-abuse challenges today rely on the treaty's own Article 29 and India's domestic GAAR instead.