India to Malaysia Withholding Tax Rates Under DTAA
When an Indian entity makes payments to a Malaysian resident — whether dividends, interest, royalties, or fees for technical services — the payment is subject to withholding tax (also called Tax Deducted at Source or TDS) under Indian domestic law. The India-Malaysia DTAA, signed on 9 May 2012 and effective from 1 April 2013, provides reduced withholding rates that are significantly lower than India's domestic rates. Under Section 90(2) of the Income Tax Act, a taxpayer may apply whichever rate is more beneficial — the DTAA rate or the domestic rate.
The India-Malaysia DTAA offers some of the most competitive withholding rates in India's treaty network, particularly the 5% dividend rate which is among the lowest available. This guide breaks down every withholding category with conditions, article references, and practical compliance guidance. For a comprehensive overview of the full treaty, see our India-Malaysia DTAA complete guide.
Dividend Withholding Rates
Under Article 10(2) of the India-Malaysia DTAA, dividends paid by an Indian company to a Malaysian beneficial owner are subject to a maximum withholding rate of 5% of the gross amount. This is a flat rate with no tiered structure based on shareholding percentage — unlike many other Indian DTAAs (such as the India-USA DTAA) which have different rates for substantial and non-substantial holders.
| Category | DTAA Rate | Domestic Rate | Conditions | Article |
|---|---|---|---|---|
| General (all dividends) | 5% | 20% | Beneficial owner is a Malaysian resident; no minimum holding threshold | Article 10(2) |
Key points for dividends:
The 5% rate offers a 75% reduction compared to India's domestic rate of 20%. This makes Malaysia one of the most tax-efficient jurisdictions for receiving dividends from Indian companies. The beneficial owner must be a genuine Malaysian tax resident — the MLI's Principal Purpose Test applies, meaning arrangements structured primarily to access the 5% rate without genuine economic substance may be denied treaty benefits.
Indian companies distributing dividends to Malaysian shareholders must deduct TDS at the 5% treaty rate — where the DTAA rate is applied, it operates as an all-inclusive cap, so no surcharge or cess is added on top. The Indian payer must file Form 15CA before making the remittance.
Interest Withholding Rates
Article 11 of the India-Malaysia DTAA governs the taxation of interest income. The treaty provides a general rate of 10% and a complete exemption for government-related interest.
| Category | DTAA Rate | Domestic Rate | Conditions | Article |
|---|---|---|---|---|
| General interest | 10% | 20% | Beneficial owner is a Malaysian resident | Article 11(2) |
| Government and central bank | 0% | 20% | Interest derived and beneficially owned by the Government of Malaysia, State Governments, local authorities, Bank Negara Malaysia, or wholly government-owned statutory bodies | Article 11(3) |
| Specified financial institutions | 0% | 20% | Interest derived and beneficially owned by EXIM Bank of Malaysia Berhad, Development Bank of Malaysia, SME Bank of Malaysia, Malaysia Industrial Development Finance Berhad, or other institutions agreed between the competent authorities | Article 11(3) |
Key points for interest:
The 10% rate halves India's domestic withholding rate of 20%, delivering significant savings for Malaysian lenders providing cross-border financing to Indian borrowers. The Article 11(3) exemption is recipient-based: it applies only where the interest is derived and beneficially owned by the Government of Malaysia, its State Governments or local authorities, Bank Negara Malaysia, statutory bodies wholly owned by the Government, or the specifically named institutions (EXIM Bank of Malaysia Berhad, Development Bank of Malaysia, SME Bank of Malaysia, and Malaysia Industrial Development Finance Berhad), plus any other institution the competent authorities agree on. There is no separate exemption for loans merely guaranteed or insured by the Government, and interest paid to commercial Malaysian banks remains subject to the 10% cap.
Under Article 11(4), "interest" means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits — in particular income from government securities and from bonds or debentures, including premiums and prizes attaching to them. Penalty charges for late payment are not treated as interest. The treaty does not include a beneficial interest rate for banks or financial institutions separate from the general rate — the 10% rate applies universally to private sector interest.
Royalty and FTS Withholding Rates
The India-Malaysia DTAA covers royalties under Article 12 and fees for technical services (FTS) under a separate Article 13, each with a maximum withholding rate of 10%.
| Category | DTAA Rate | Domestic Rate | Conditions | Article |
|---|---|---|---|---|
| Copyright royalties | 10% | 20% | Literary, artistic, or scientific works including cinematograph films and broadcast films or tapes | Article 12(2) |
| Industrial royalties | 10% | 20% | Patents, trademarks, designs, models, plans, secret formulas, or processes | Article 12(2) |
| Equipment royalties | 10% | 20% | Use of industrial, commercial, or scientific equipment | Article 12(2) |
| Managerial services | 10% | 20% | Payments for managerial services to Malaysian residents | Article 13(2) |
| Technical services | 10% | 20% | Engineering, IT consulting, and project management | Article 13(2) |
| Consultancy services | 10% | 20% | Advisory and professional services | Article 13(2) |
Important distinction — No "make available" clause:
Unlike the India-USA DTAA (which taxes only services that "make available" technical knowledge), the India-Malaysia DTAA has no "make available" requirement. This means all types of managerial, technical, and consultancy services provided by Malaysian residents to Indian entities are potentially taxable as FTS at 10%, regardless of whether technical knowledge is transferred to the recipient. This broader definition increases the likelihood of FTS characterization for routine services.
Capital Gains Treatment
Article 14 of the India-Malaysia DTAA provides specific rules for the taxation of capital gains:
Immovable property: Gains from the alienation of immovable property situated in India are taxable in India at applicable domestic rates (long-term capital gains are generally taxed at 12.5% without indexation following the Finance (No. 2) Act, 2024).
Shares of immovable property-rich companies: Gains from shares deriving more than 50% of their value, directly or indirectly, from immovable property in India may be taxed in India at domestic rates (Article 14(4)).
Other shares: Gains from the alienation of shares of an Indian company (other than immovable property-rich shares) may be taxed in India. The treaty does not cap the rate, so India applies its domestic capital gains rates — for example, long-term gains on unlisted shares are taxed at 12.5% (plus surcharge and cess) without indexation. This is relevant for Malaysian portfolio and strategic investors in Indian equities.
Business assets: Gains from the alienation of movable property forming part of the business property of a PE in India are taxable in India.
For a detailed breakdown of capital gains taxation, see our capital gains tax page for India-Malaysia.
How to Apply Reduced Rates
Malaysian residents seeking to benefit from the lower treaty rates must follow a specific compliance process:
Step 1: Obtain Tax Residency Certificate (TRC)
Obtain a Tax Residency Certificate from the Inland Revenue Board of Malaysia (LHDN). The TRC must cover the relevant fiscal year and certify that the recipient is a tax resident of Malaysia under the DTAA.
Step 2: File Form 10F
Furnish Form 10F on the Indian Income Tax e-filing portal. This form requires details including the recipient's name, status, address, TIN in Malaysia, period of residential status, and the nature of income.
Step 3: Submit Self-Declaration
Provide a self-declaration confirming beneficial ownership, absence of PE in India (if relevant), and that the arrangement has a genuine business purpose. The declaration should address the MLI's Principal Purpose Test requirements.
Step 4: Lower Withholding Certificate (Optional)
If the Indian payer faces difficulty applying the treaty rate directly, the Malaysian recipient can apply to the Indian Assessing Officer under Section 197 for a lower or nil withholding certificate. This certificate authorizes the payer to deduct tax at the certified lower rate.
Step 5: Indian Payer Compliance
The Indian payer must deduct TDS at the treaty rate under Section 195, file Form 15CA electronically before remittance, and obtain Form 15CB from a Chartered Accountant for payments exceeding INR 5 lakh.
Domestic Rates vs Treaty Rates Comparison
The following comprehensive comparison demonstrates the significant tax savings available under the India-Malaysia DTAA:
| Income Type | DTAA Rate | Domestic Rate | Savings |
|---|---|---|---|
| Dividends | 5% | 20% | 75% reduction |
| Interest (general) | 10% | 20% | 50% reduction |
| Interest (government) | 0% | 20% | 100% exemption |
| Royalties | 10% | 20% | 50% reduction |
| Fees for technical services | 10% | 20% | 50% reduction |
The India-Malaysia DTAA's 5% dividend rate is the standout benefit — one of the lowest in India's treaty network — lower than the 10-15% dividend rates under the India-Singapore DTAA. For businesses structuring cross-border payments, proper documentation and compliance are essential. Beacon Filing's tax advisory team can help optimize your withholding tax position.
Common Mistakes and Compliance Tips
Based on our experience advising India-Malaysia cross-border transactions, these are the most common errors and best practices:
Mistake 1: Failing to obtain TRC before payment. The TRC must be obtained and submitted before the payment is made. Retroactive claims are significantly more difficult and may require filing a revised return or claiming a refund, which can take 12-24 months.
Mistake 2: Applying treaty rates without beneficial ownership analysis. Under the MLI's Principal Purpose Test, merely routing payments through Malaysia to access the 5% dividend rate without genuine economic substance can result in treaty benefits being denied by Indian tax authorities.
Mistake 3: Confusing FTS with business profits. If a Malaysian company has a PE in India, income attributable to the PE is taxed as business profits under Article 7 (at domestic corporate rates), not as FTS at 10%. Incorrectly claiming FTS treatment for PE-attributable income can trigger reassessment and penalties.
Mistake 4: Misapplying surcharge and cess. Surcharge and health and education cess apply on top of the base rate only when tax is deducted at domestic-law rates (for example, where treaty documentation is incomplete). When the DTAA rate is applied, it operates as an all-inclusive cap and no surcharge or cess should be added on top of it.
Mistake 5: Not filing Form 15CA/15CB. Even when treaty rates apply, the Indian payer must file Form 15CA (and 15CB for payments exceeding INR 5 lakh) before making the remittance. Failure to file attracts penalties under Section 271-I of the Income Tax Act.
For professional assistance with India-Malaysia tax compliance, contact Beacon Filing's FEMA and RBI compliance team.
Frequently Asked Questions
What is the withholding tax rate on dividends from India to Malaysia?
Under the India-Malaysia DTAA, dividends paid by an Indian company to a Malaysian beneficial owner are subject to a maximum withholding rate of 5%. This is a flat rate with no tiered structure based on shareholding percentage, making it one of the most competitive rates in India's DTAA network.
Is there a reduced interest rate for Malaysian banks lending to India?
The treaty does not provide a separate preferential rate for Malaysian banks — the general treaty rate of 10% applies to all private sector interest. However, interest derived and beneficially owned by Bank Negara Malaysia (the central bank) or the government-owned institutions named in the treaty, such as EXIM Bank of Malaysia Berhad, is fully exempt under Article 11(3).
Does the "make available" clause apply to India-Malaysia FTS?
No. Unlike the India-USA DTAA, the India-Malaysia treaty does not contain a "make available" clause. All managerial, technical, and consultancy services provided by Malaysian residents to Indian entities are covered as FTS at 10%, regardless of whether technical knowledge is transferred to the recipient.
Can I apply for a lower withholding certificate?
Yes. If you are a Malaysian resident receiving income from India and the payer faces difficulty applying the treaty rate, you can apply to the Indian Assessing Officer under Section 197 for a lower or nil withholding certificate. This is particularly useful for recurring payments.
What happens if the Indian payer deducts tax at the domestic rate instead of the DTAA rate?
If excess tax is deducted, the Malaysian recipient can file an Indian income tax return claiming a refund of the excess amount. The return must be filed within the time limits prescribed under the Income Tax Act; for late refund claims, an application for condonation of delay can be made to the CBDT. Alternatively, the recipient can approach the Indian payer to correct the TDS before the quarterly TDS return is filed.
How does the MLI affect withholding rates under this treaty?
The MLI does not change the stated withholding rates in the treaty. However, the Principal Purpose Test (PPT) introduced by the MLI means that treaty benefits (including reduced rates) may be denied if one of the principal purposes of an arrangement was to obtain those benefits without genuine economic substance or business purpose.
Are there any exemptions for government payments?
Yes. Interest derived and beneficially owned by the Government of Malaysia, its State Governments or local authorities, Bank Negara Malaysia, wholly government-owned statutory bodies, or specified institutions such as EXIM Bank of Malaysia Berhad is fully exempt from Indian withholding tax under Article 11(3). The exemption depends on who receives the interest — there is no separate exemption for loans merely guaranteed by the Malaysian Government.
This article is for general information only and is not legal, tax, or investment advice. Confirm current rules with the relevant authority or a qualified professional — or ask our team. See our full disclaimer.
Doing business between India and Malaysia? Our team handles the treaty filings.
Tax Advisory for Foreign Investors in IndiaMalaysia — Dividend Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Beneficial owner is a resident of Malaysia; no minimum holding requirement — flat 5% rate applies to all dividend payments | 5% | 20% | Article 10(2) |
Malaysia — Interest Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| General Standard rate for interest payments where the beneficial owner is a resident of Malaysia | 10% | 20% | Article 11(2) |
| Government and central bank Interest derived and beneficially owned by the Government of Malaysia, the State Governments, local authorities, Bank Negara Malaysia, or statutory bodies wholly owned by the Government | 0% | 20% | Article 11(3) |
| Specified financial institutions Interest derived and beneficially owned by the Export-Import Bank of Malaysia Berhad, Bank Pembangunan Malaysia Berhad (Development Bank of Malaysia), SME Bank of Malaysia Berhad, Malaysia Industrial Development Finance Berhad, or any other institution agreed between the competent authorities | 0% | 20% | Article 11(3) |
Malaysia — Royalty Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Copyright royalties Payments for the use of or right to use copyrights of literary, artistic, or scientific works including cinematograph films and films or tapes used for television or radio broadcasting | 10% | 20% | Article 12(2) |
| Industrial royalties Payments for the use of or right to use patents, trademarks, designs, models, plans, secret formulas, or processes | 10% | 20% | Article 12(2) |
| Equipment royalties Payments for the use of or right to use industrial, commercial, or scientific equipment | 10% | 20% | Article 12(2) |
Malaysia — FTS Rates
DTAA Rate vs Domestic Rate
| Income Category | DTAA Rate | Domestic Rate | Article |
|---|---|---|---|
| Managerial services Payments for managerial services rendered by a Malaysian resident to an Indian entity | 10% | 20% | Article 13(2) |
| Technical services Payments for technical services including engineering, IT consulting, and project management | 10% | 20% | Article 13(2) |
| Consultancy services Payments for consultancy services including advisory and professional services | 10% | 20% | Article 13(2) |