Withholding Tax Rates: India to Mexico Under DTAA

India to Mexico Withholding Tax Rates Under DTAA

When an Indian entity makes payments to a Mexican resident — whether dividends, interest, royalties, or fees for technical services — withholding tax must be deducted at source under Section 195 of the Income Tax Act, 1961. The India-Mexico DTAA, signed on 10 September 2007 and in force since 1 February 2010, provides a uniform reduced rate of 10% across all major income categories — halving India's domestic rate of 20%.

Both India and Mexico have ratified the OECD Multilateral Instrument (MLI). India's MLI entered into force on 1 October 2019, and Mexico's on 1 July 2023. The MLI's Principal Purpose Test (PPT) now supplements the treaty's existing Limitation of Benefits clause. Under Section 90(2) of the Income Tax Act, taxpayers can apply whichever rate — the treaty rate or the domestic rate — is more beneficial. For payments from India to Mexico, the 10% treaty rate is more beneficial than the standard 20% domestic rate in every category (only concessional domestic regimes, such as Section 194LC interest on certain pre-July 2023 borrowings, can be lower than the treaty rate). For the full treaty analysis, see our India-Mexico DTAA complete guide.

Dividend Withholding Rates

Under Article 10 of the India-Mexico DTAA, dividends paid by an Indian company to a Mexican resident are subject to the following withholding rate:

Key points: The India-Mexico DTAA applies a flat 10% rate on all dividends without distinguishing between portfolio and substantial shareholders. This provides a saving of 10 percentage points compared to the domestic rate of 20% — one of the most favorable dividend treaty rates in India's DTAA network, on par with treaties like the India-South Africa DTAA.

Since India abolished the Dividend Distribution Tax (DDT) from 1 April 2020, dividends are now taxable in the hands of the recipient. The 10% treaty rate directly benefits Mexican shareholders receiving dividends from Indian companies, whether they are corporate entities or individual investors.

Interest Withholding Rates

Article 11 of the treaty provides two tiers for interest payments:

The interest provisions offer substantial savings for Mexican lenders providing capital to Indian entities. A Mexican bank or financial institution lending to an Indian company pays only 10% withholding tax instead of the domestic 20%, translating to significant cost reductions on external commercial borrowings. Interest derived by governments, political subdivisions, local authorities, central banks (Reserve Bank of India and Banco de Mexico) and listed institutions — the Export-Import Bank of India, the National Housing Bank, Banco Nacional de Comercio Exterior, Nacional Financiera and Banco Nacional de Obras y Servicios Publicos (Banobras) — is fully exempt from withholding tax under Article 11(3). Interest paid by a government, political subdivision, local authority or central bank is likewise exempt, but this payer-side leg does not extend to the named development banks.

Interest is deemed to arise in India if the payer is the Government of India, a political subdivision, a local authority, or an Indian resident. Where interest is paid in connection with a permanent establishment in India, it is deemed to arise in India regardless of the payer's residence.

Royalty and FTS Withholding Rates

Article 12 of the India-Mexico DTAA covers both royalties and fees for technical services under a unified 10% rate:

Important distinction from the India-USA DTAA: Unlike the India-USA treaty which contains the restrictive "make available" clause for fees for included services, the India-Mexico treaty covers all services of a managerial, technical, or consultancy nature at 10%. This means routine management fees, IT consulting, advisory services, engineering support, and any other technical or consultancy payments to Mexican residents are all covered under the 10% treaty rate.

Comparison with the India-Brazil DTAA: The India-Mexico treaty is also more favorable than the India-Brazil DTAA, which (under the India-Brazil DTAA protocol, effective in India from FY 2026-27) charges 10% on general royalties and 15% on trademark royalties. The India-Mexico treaty applies a flat 10% to all royalty types including trademarks.

The uniform 10% rate across royalties and FTS makes the India-Mexico treaty one of the simplest and most favorable in India's DTAA network for technology transfers, licensing arrangements, and cross-border service provision. Beacon Filing's tax advisory team can help structure your royalty and service agreements to maximize DTAA benefits.

Capital Gains Treatment

Article 13 of the India-Mexico DTAA addresses capital gains with several provisions following the UN Model Convention approach:

Immovable property: Gains from the alienation of immovable property situated in India are taxable in India at applicable domestic rates — 12.5% for long-term capital gains (held over 24 months) and applicable domestic rates for short-term gains.

Shares deriving value from immovable property: Gains from the sale of shares of a company whose assets consist principally of immovable property in India may be taxed in India. This prevents indirect transfers of real estate through corporate structures.

Shares generally: Following the UN Model approach, gains from the sale of shares in Indian companies by Mexican residents may be taxed in India. This is broader than OECD Model treaties which typically reserve share sale taxation only to the resident's state.

PE-related assets: Gains from the alienation of movable property forming part of a PE's business property are taxable in the PE's state.

Ships and aircraft: Gains from the alienation of ships or aircraft operated in international traffic are taxable only in the state of which the alienator is a resident.

How to Apply Reduced Rates

To apply the reduced 10% DTAA rates instead of the domestic 20%, both the Mexican recipient and the Indian payer must comply with specific procedures:

For the Mexican Recipient

1. Obtain a Tax Residency Certificate (TRC) — The Mexican resident must obtain a TRC from the Servicio de Administracion Tributaria (SAT) certifying their tax residency for the relevant fiscal year
2. Complete Form 10F — Furnish Form 10F to the Indian payer with details including name, status, nationality, RFC (Registro Federal de Contribuyentes) tax identification number, and period of residential status
3. Self-declaration — Provide a declaration confirming beneficial ownership of the income, absence of a PE in India, and compliance with the treaty's Limitation of Benefits requirements

For the Indian Payer

1. Verify documentation — Ensure TRC, Form 10F, and self-declaration are on file before applying the reduced rate
2. File Form 15CA online — Submit Form 15CA on the Income Tax portal before making the remittance
3. Obtain Form 15CB — For payments exceeding INR 5 lakh, obtain a Chartered Accountant's certificate in Form 15CB
4. Handle certificate-based rates correctly — a lower or nil withholding certificate under Section 197 is applied for by the Mexican payee, not by the Indian payer. Where the payer considers that only a part of the remittance is chargeable to tax, its own route is an application to the Assessing Officer under Section 195(2)

Domestic Rates vs Treaty Rates Comparison

India's domestic withholding tax rates for non-residents (without surcharge and cess) compared with the India-Mexico DTAA rates:

Important note on surcharge and cess: Under domestic law, the withholding rate is further increased by applicable surcharge and health and education cess of 4%, leading to effective rates of approximately 20.8% to 21.84%. When treaty rates are applied, surcharge and cess are not levied on top of the treaty rate, making the effective savings even greater — potentially 11-12 percentage points in real terms.

The India-Mexico DTAA stands out for its uniformity — a flat 10% rate across all categories with no complex sub-categorizations or conditional rates. This makes compliance straightforward and predictable for both payers and recipients.

Common Mistakes and Compliance Tips

Mistake 1: Not Obtaining TRC Before Remittance

Many Indian payers apply the 10% treaty rate without collecting the Tax Residency Certificate from SAT first. The Income Tax Department can disallow the treaty benefit and demand tax at the domestic rate of 20% plus interest if the TRC is not on record at the time of payment.

Mistake 2: Ignoring MLI and LoB Requirements

The India-Mexico treaty has a dual anti-abuse framework — the original LoB clause plus the MLI's Principal Purpose Test. Mexican entities routing transactions through shell structures or arranging affairs primarily to obtain treaty benefits may be denied the 10% rate. Genuine economic substance is essential.

Mistake 3: Misclassifying FTS as Business Income

Some payers incorrectly treat technical service fees as business income (not taxable without a PE) rather than applying the 10% FTS rate under Article 12. The treaty's broad definition — covering all managerial, technical, and consultancy services — means most service payments attract the 10% rate.

Mistake 4: Forgetting Form 15CA/15CB Requirements

Failing to file Form 15CA/15CB before remittance can result in a penalty under Section 271-I (INR 1 lakh). The form must be filed electronically before the bank processes the outward remittance.

Mistake 5: Not Claiming Foreign Tax Credit in Mexico

Mexican residents who have had Indian tax withheld at 10% must claim the foreign tax credit on their Mexican return (declaracion anual) under Mexican income tax law to avoid actual double taxation. Failing to claim the credit results in paying tax twice on the same income.

For end-to-end compliance support on cross-border payments between India and Mexico, contact Beacon Filing's team of chartered accountants and tax advisors.

Frequently Asked Questions

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

The DTAA rate on dividends is a flat 10%, applicable to all Mexican residents regardless of shareholding percentage. This provides a 10 percentage point saving compared to the domestic rate of 20%, making it one of the most favorable dividend treaty rates in India's DTAA network.

Does the MLI affect the India-Mexico DTAA?

Yes. Both India and Mexico have ratified the MLI. The Principal Purpose Test (PPT) now supplements the treaty's existing Limitation of Benefits clause, creating a dual anti-abuse framework. Genuine economic substance is required to claim treaty benefits.

Are all service payments taxable at 10% under the India-Mexico DTAA?

Article 12 covers fees for services of a managerial, technical, or consultancy nature at 10%. Unlike the India-USA treaty, there is no "make available" requirement. Routine management fees, IT consulting, advisory services, and engineering support are all covered at the 10% rate.

How does the India-Mexico treaty compare to the India-Brazil treaty?

The India-Mexico treaty is at least as favorable in every category — and strictly better for most dividend and trademark-royalty payments. Mexico has a flat 10% rate on dividends vs Brazil's 10-15% (tiered by shareholding), and a flat 10% on all royalties vs Brazil's 10% (general) to 15% (trademark) split under the DTAA protocol effective in India from FY 2026-27. Both treaties now tax fees for technical services at 10% (Mexico under Article 12; Brazil under the new Article 12-A).

Can I apply for a nil withholding certificate under the India-Mexico DTAA?

Yes, but the application is made by the recipient. Under Section 197 of the Income Tax Act the Mexican payee applies to the Assessing Officer for a certificate authorizing lower or nil withholding where its actual tax liability is expected to be nil or lower than the treaty rate. The Indian payer cannot apply under Section 197 — the payer's route is an application under Section 195(2) to determine the proportion of the remittance chargeable to tax.

What documentation is required to claim DTAA benefits in India?

The Mexican resident must provide a Tax Residency Certificate from SAT, Form 10F, and a self-declaration of beneficial ownership and non-PE status. The Indian payer must file Form 15CA and Form 15CB for payments exceeding INR 5 lakh before making the remittance.