Withholding Tax Rates: India to New Zealand Under DTAA

India to New Zealand Withholding Tax Rates Under the DTAA

Payments from an Indian entity to a New Zealand resident are subject to Tax Deducted at Source (TDS) under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-New Zealand DTAA, signed at Auckland on 17 October 1986 and in force from 3 December 1986 (full text on the Income Tax Department's website), offers reduced rates on most passive income — but this treaty's dividend rate (15%) is one of the less generous in India's treaty network, with no shareholding-based tier.

Section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) lets the taxpayer apply whichever of the domestic or treaty rate is more beneficial. The rates below are the ones set by the Second Protocol, effective 1 April 2000 — the original 1986 Convention set higher rates (dividends 20%, interest 15%, royalties/FTS 30%) that no longer apply.

Dividend Withholding Rate

Article 10(2) caps Indian withholding on dividends paid to a New Zealand beneficial owner at 15% of the gross amount: "the tax so charged shall not exceed 15 per cent of the gross amount of the dividends." This is a single flat rate — there is no 5% or 10% tier for substantial shareholdings, unlike many of India's more recent treaties, and no most-favoured-nation clause to reach for a better rate. A New Zealand parent holding 100% of an Indian subsidiary pays the same 15% as a portfolio investor holding a handful of shares.

If the dividend-paying relationship is effectively connected with a New Zealand-owned PE or fixed base in India, Article 10(4) routes the income to business profits under Article 7 or Article 14 instead, taxed at the ordinary 35% foreign-company rate (plus surcharge and cess) rather than the 15% treaty cap.

Interest Withholding Rate

Article 11(2) caps ordinary interest at 10% of the gross amount, with no separate tier for banks or financial institutions — a New Zealand bank lending to an Indian borrower and a New Zealand individual both cap out at 10%.

Article 11(3) then exempts interest entirely where it is "derived and beneficially owned by" a closed list: (i) the Government, a political subdivision or local authority of the other State; (ii) the Central Bank of the other State; or (iii), asymmetrically, "in the case of India, the Export Import Bank of India; in the case of New Zealand, any financial institution agreed to be of a similar nature to the Export Import Bank of India by the competent authorities of both Contracting States." India's limb names a specific institution. New Zealand's limb names none — no New Zealand bank or agency qualifies for the 0% rate until India and New Zealand's competent authorities have specifically agreed that it is of a similar nature to India's Exim Bank. The Reserve Bank of New Zealand is covered only under limb (ii), as the Central Bank, never under limb (iii). There is no payer-side exemption and no guaranteed-loan carve-out of the kind some other India treaties contain — ordinary commercial lending is taxed at the full 10%.

Where the debt-claim is effectively connected with a PE in India, Article 11(5) routes the interest to Article 7 business profits at the 35% foreign-company rate instead of the 10% treaty cap.

Royalty and FTS Withholding Rate

Article 12, titled "Royalties and Fees for Technical Services," covers both income types in a single provision, both capped at 10% under Article 12(2). There is no separate FTS article in this treaty.

The royalty definition (Article 12(3)) is OECD-style, covering copyrights, patents, trademarks, designs, secret processes, and — importantly — "the use of, or the right to use, industrial, commercial, or scientific equipment," so equipment-leasing payments fall within the 10% royalty cap rather than being treated as ordinary business income. Cinematograph films and television/radio tapes are also expressly covered.

The FTS definition (Article 12(4)) is broad and has no make-available test: "payments of any kind to any person ... in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel." Only two payments are excluded — those to the payer's own employee, and those to an individual for Article 14 independent personal services. Management fees and seconded-personnel arrangements are both taxed as FTS at 10%, not left to a higher default rate.

Where the royalty or FTS is effectively connected with a PE in India, Article 12(5) routes the income to Article 7 business profits at 35% instead of the 10% treaty cap.

Effectively Connected Income — the PE Carve-Out

All four passive-income articles — 10(4), 11(5), and 12(5) (which covers both royalties and FTS) — share the same structure: if the New Zealand recipient carries on business in India through a PE, or performs independent personal services from a fixed base, and the holding, debt-claim, or right in question is effectively connected with it, the treaty caps stop applying. The income is instead taxed as ordinary business profits under Article 7 (or independent-services income under Article 14) at India's standard 35% foreign-company rate, plus applicable surcharge and cess. A New Zealand technology company with an Indian branch office that licenses software through that branch, for example, would be taxed on the royalty as business profits of the branch — not at the 10% treaty rate.

Capital Gains and Share-Sale Withholding

Article 13(5) gives India an unconditional right to tax a New Zealand resident's gain on shares of an Indian-resident company — there is no minimum-shareholding threshold and no land-rich test for this paragraph. A separate land-rich test in Article 13(4) is replaced by the MLI: shares (or comparable partnership/trust interests) are taxable in India if, at any point in the 365 days before the sale, they derived more than 50% of their value from Indian immovable property. Ships, aircraft and related movables used in international traffic are taxed only in the operating enterprise's residence State (Article 13(3)), not by reference to place of effective management.

Where India retains the taxing right, the buyer or a designated withholding agent deducts tax under domestic capital-gains provisions: 20% on listed-share short-term gains (section 196 of the Income-tax Act, 2025; section 111A of the 1961 Act), 12.5% above INR 1.25 lakh on listed-share long-term gains (section 198; section 112A of 1961), and 12.5% without indexation on unlisted-share long-term gains (section 197; section 112 of 1961) — the situation most New Zealand investors selling an Indian subsidiary will face.

How to Apply the Reduced Rate

To apply a DTAA rate instead of the 20% domestic default, the New Zealand recipient and the Indian payer need:

Certificate of New Zealand tax residency

Issued by Inland Revenue — the Article 3 competent authority — confirming the recipient's New Zealand tax residency. Individuals apply through myIR; entities and trusts submit the required information directly to Inland Revenue. There is no numbered certificate form as such.

Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41 on the Indian income-tax portal, since treaty relief at source is not automatic without it — providing status, tax identification number, and period of residence.

Self-declaration

A declaration of beneficial ownership of the income and confirmation that no Indian PE exists supports application of the reduced rate.

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

The Indian payer files Form 145 before remitting; for a taxable remittance exceeding INR 5 lakh made without a section 395 certificate, a Chartered Accountant must additionally certify the remittance on Form 146. Payments to a New Zealand associated enterprise are separately reportable on Form 48 (formerly Form 3CEB), regardless of the amount involved.

Lower withholding certificate

If the applicable rate is uncertain, 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 correct rate in advance, avoiding over-withholding.

Worked Examples

Dividend: An Indian subsidiary declares a dividend of INR 50,00,000 to its New Zealand parent. Without treaty benefits, section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the 1961 Act) would apply 20% withholding — INR 10,00,000. With a valid New Zealand residency certificate and Form 41 on file, Article 10(2) caps the rate at 15%, so the company withholds INR 7,50,000 instead, a saving of INR 2,50,000.

Interest: An Indian borrower pays NZD 500,000 in interest to a New Zealand commercial lender (not a government body or the Reserve Bank). Article 11(2) caps withholding at 10% — there is no exemption here, since ordinary commercial lenders fall outside the closed list in Article 11(3). If the same interest were paid to the Government of New Zealand or its Central Bank, Article 11(3) would exempt it entirely.

Domestic Rates vs Treaty Rates Comparison

The DTAA rate is the final, all-inclusive rate — no surcharge or cess is layered on top, unlike the domestic rates under section 207(1) and (2).

Common Mistakes and Compliance Tips

• Applying the pre-2000 rates. The original 1986 Convention set dividends at 20%, interest at 15%, and royalties/FTS at 30%; the Second Protocol replaced all three effective 1 April 2000. Never quote the old figures as current.
• Assuming a lower dividend rate for a substantial New Zealand shareholding. Article 10(2) is a flat 15% regardless of ownership percentage — there is no participation tier to plan around.
• Treating any New Zealand lender as exempt under Article 11(3). Only the Government, the Central Bank, or an institution the competent authorities have specifically agreed is similar to the Export-Import Bank of India qualifies — ordinary banks and corporate lenders are taxed at 10%.
• Ignoring the PE carve-out. If the New Zealand recipient has an Indian PE and the income is effectively connected with it, the treaty caps do not apply — the income is taxed as business profits at 35%.
• Skipping Form 41 or Form 145, or the Form 146 certificate where Part C applies. Treaty relief at source is not automatic; without the correct forms on file, the payer must withhold at the higher domestic rate and the recipient must claim a refund by filing an Indian return.

For the full treaty picture — residence rules, permanent establishment thresholds, and anti-abuse provisions — see our complete guide to the India-New Zealand DTAA or our DTAA master guide covering all of India's tax treaties.

Frequently Asked Questions

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

Article 10(2) of the India-New Zealand DTAA caps Indian withholding on dividends at a flat 15% of the gross amount, against a domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the 1961 Act). There is no lower rate for substantial New Zealand shareholdings — 15% applies to every beneficial owner regardless of ownership percentage, and there is no most-favoured-nation clause to import a better rate.

Is there a 0% withholding rate for interest paid to New Zealand banks?

No. Article 11(2) caps ordinary interest, including interest to New Zealand banks and financial institutions generally, at a flat 10%. The 0% exemption in Article 11(3) covers only the New Zealand Government, the Reserve Bank of New Zealand as Central Bank, or a New Zealand financial institution the two competent authorities have specifically agreed is similar to the Export-Import Bank of India. Ordinary commercial lending by a New Zealand bank is taxed at 10%, not exempt.

What is the FTS rate under the India-New Zealand DTAA, and is there a make-available test?

Fees for technical services are capped at 10% under Article 12(2), the same paragraph and rate as royalties, against a 20% domestic rate. There is no make-available test in this treaty's FTS definition (Article 12(4)) — managerial, technical and consultancy services, including the provision of technical or other personnel, all qualify for the 10% rate, a broader scope than treaties that require technical knowledge to be transferred.

Do I need Form 146 for every payment to New Zealand?

Form 146 (the Chartered Accountant's certificate, formerly Form 15CB) is required only for a taxable remittance exceeding INR 5 lakh made without a section 395 certificate. Form 145 (formerly Form 15CA) must still be filed for every remittance regardless of amount. Payments to a New Zealand associated enterprise carry the separate, value-independent requirement to file Form 48 (formerly Form 3CEB) for related-party reporting.

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

If the dividend, interest, royalty or FTS is effectively connected with a permanent establishment or fixed base the New Zealand recipient has in India (Articles 10(4), 11(5) and 12(5)), the treaty caps stop applying. The income is instead taxed as ordinary business profits under Article 7, or as independent-services income under Article 14, at India's standard 35% foreign-company rate plus surcharge and cess.

How is withholding handled when a New Zealand resident sells shares in an Indian company?

Article 13(5) gives India an unconditional right to tax such gains, with no minimum-shareholding threshold. Tax is then withheld at India's domestic capital-gains rates: 20% for listed-share short-term gains, 12.5% above INR 1.25 lakh for listed-share long-term gains, or 12.5% without indexation for unlisted-share long-term gains — the last being the typical case for a New Zealand parent exiting an Indian subsidiary.