Withholding Tax Rates: India to Philippines Under DTAA

India to Philippines Withholding Tax Rates Under the DTAA

When an Indian entity pays a Philippine resident - dividends, interest, or royalties - tax must be withheld under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-Philippines DTAA, signed 12 February 1990 and in force from 21 March 1994, reduces several of these rates below India's domestic 20% - but this treaty is unusually conditional in places, and has no article at all for technical service fees. Under the treaty-more-beneficial rule in section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the taxpayer applies whichever of the treaty or domestic rate is more favourable, subject to meeting the treaty's own conditions.

Dividend Withholding Rates

Article 11 sets two tiers, and the difference between them turns entirely on the shareholder's structure:

The 20% tier is worth flagging on its own: it is identical to India's domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), so for any individual shareholder, or a company under the 10% threshold, the treaty provides no rate relief whatsoever - its only function is to cap surcharge and cess, which do not apply on treaty rates. Only a corporate parent holding at least 10% of the shares - not capital, not voting rights, specifically shares - reaches the 15% tier. Beneficial ownership under Article 11(2) must also be genuine; a conduit arrangement can be challenged under India's domestic GAAR even though this treaty has no LOB or PPT of its own.

Interest Withholding Rates

Article 12 splits interest into several tiers and two narrow exemptions:

The 10% financial-institution tier and the one-way public-bond tier are easy to conflate; only the first reduces Indian withholding on a payment out of India. The two Article 12(3) exemptions are narrow by design: the exchanged-letters limb names no institution in any source read for this page, and the approval-based limb requires the source State to approve both the recipient and the underlying transaction - it is not a general exemption for related-party or sovereign lending. Article 12(4) excludes late-payment penalty charges from the definition of interest, and there is no domestic-law assimilation clause widening what counts as interest beyond the treaty's own text.

Read the 20% domestic comparator in this table carefully: it is the section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) rate, and that entry covers only interest on money borrowed by the Government or an Indian concern in foreign currency. Rupee-denominated interest to a Philippine resident sits outside it, at the residual "rates in force" under section 393(2) of the Income-tax Act, 2025 — currently 30% for non-resident individuals and 35% for foreign companies, plus surcharge and cess. On a rupee loan the 10% and 15% treaty caps therefore save far more than the 20% column implies.

Royalty Withholding Rates - and Why There Is No FTS Rate

This is the single most important rate on the page. Article 13(2)'s 15% cap is not a general royalty rate - it applies "provided that such royalties are payable... by an enterprise which is registered with the [Philippine] Board of Investment" or, for a payment out of India, "in pursuance of any collaboration agreement approved by the Government of India". An Indian company licensing software, a trademark, or know-how from an ordinary, unregistered Philippine vendor with no such Government approval gets no treaty cap at all: Article 13(1) leaves the payment to India's full 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). The royalty definition itself (Article 13(3)) is broad - copyright including films and broadcast tapes, patents, trademarks, designs, secret formulas, and the use of industrial, commercial or scientific equipment or know-how - with no OECD-style equipment carve-out.

There is no fees-for-technical-services article anywhere in this Convention or its Protocol. The article sequence runs straight from Royalties (13) to Capital Gains (14). Technical, managerial and consultancy fees paid to a Philippine enterprise are business profits under Article 7 - taxable in India only if the enterprise has a permanent establishment here, and then only on profits attributable to it. Fees paid to an individual professional instead fall to Article 23, Other Income, which is residence-only with no PE carve-out. Do not withhold at a quoted "FTS rate" for a Philippine payee - none exists in this treaty. Domestic law still labels such fees as FTS by default, taxable at 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), unless the Philippine recipient claims the treaty position with a TRC and Form 41; without that claim, a payer may reasonably withhold at the domestic rate.

Capital Gains Treatment

Article 14 does not set a withholding rate; it allocates which State may tax at all, and it is unusually favourable to a Philippine seller:

• Immovable property (14(1)): taxable where the property is situated.
• PE/fixed-base movables, including sale of the PE itself (14(2)): taxable in the PE State.
• Ships and aircraft in international traffic (14(3)): taxable only in the alienator's residence State, not the place of effective management.
• Land-rich shares, partnerships and trusts (14(4)): taxable at situs if the entity's property consists principally of immovable property - a test with no percentage threshold, no look-back and no de-minimis rule.
• Everything else (14(5)): taxable only in the seller's residence State.

There is no general share-alienation paragraph in this treaty. A Philippine resident selling shares in an ordinary Indian company that is not land-rich is taxed only in the Philippines - India gets no look-in under Article 14(5). Because the treaty has no LOB article and is not MLI-covered (no PPT, no 365-day land-rich look-back), the only Indian response to treaty shopping through this residual paragraph is domestic GAAR under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) and Chapter XI.

How to Apply Reduced Rates

Tax Residency Certificate

The Philippine resident must hold a valid Tax Residency Certificate. The Philippine issuing office is not independently verified for this page; confirm the current authority directly with a Philippine tax adviser before relying on it.

Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41, stating status, nationality, tax identification number, and period of residence. This filing is what activates the treaty rate at source - a Philippine recipient does not get the reduced rate automatically without it.

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

The Indian payer files Form 145 for the remittance and, where the payment exceeds INR 5 lakh without an Assessing Officer certificate, obtains a Chartered Accountant's certificate in Form 146 before remitting.

Lower or Nil Deduction Certificate

Where the rate is genuinely in doubt - most often whether a royalty meets the Board of Investment-registration or Government-approval condition - the Philippine recipient may apply to the Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate specifying the correct rate in advance; the Indian payer's own route is section 395(2) (section 195(2) and (3) of the Income-tax Act, 1961).

Worked Examples

• Dividend, 15% shareholder: an Indian company pays INR 60,00,000 in dividends to a Philippine parent holding 15% of its shares. Article 11(2)(a) applies: TDS at 15% = INR 9,00,000, and INR 51,00,000 is remitted.
• Dividend, 6% shareholder: the same Indian company pays INR 20,00,000 to a Philippine individual holding 6% of the shares. Article 11(2)(b) applies at 20% = INR 4,00,000 - identical to the domestic rate, so the treaty saves nothing here.
• Royalty, unregistered payer: an Indian manufacturer pays INR 30,00,000 to a Philippine trademark licensor with no Board of Investment registration and no Government-approved collaboration agreement. Article 13(2) does not apply; TDS is at the domestic 20% = INR 6,00,000, not the 15% (INR 4,50,000) a payer might wrongly assume from the treaty summary alone.
• Consultancy fee, no PE: an Indian company pays a Philippine consulting firm INR 15,00,000 for a market-entry study, and the firm has no permanent establishment in India. Because there is no FTS article, the payment is business profits under Article 7 and is not taxable in India at all once the firm files Form 41 and a TRC - an outcome that is not available where the applicable treaty does contain an FTS article.

Domestic Rates vs Treaty Rates Comparison

Surcharge and cess do not apply on top of a treaty rate, but they do apply on the domestic rate figures above. The Equalisation Levy, formerly relevant to some digital payments, has been abolished and is not a factor on any of these categories.

Common Mistakes and Compliance Tips

• Applying 15% to every royalty. Verify Board of Investment registration or Government approval before assuming the cap applies; absent either, the rate is the full domestic 20%.
• Withholding at an invented FTS rate. There is no FTS article - check whether Article 7 (PE test) or Article 23 (residence-only) actually governs the payment before withholding anything.
• Assuming 15% dividends for any Philippine parent. The company must hold at least 10% of the shares specifically; individuals never qualify for the 15% tier.
• Skipping Form 41. The treaty rate is not automatic at source - filing Form 41 and holding a TRC is what activates it; otherwise the payer may correctly default to the domestic rate.
• Relying on the MLI. The Philippines has never signed the MLI, so no PPT or LOB test applies here - only India's domestic GAAR reaches abusive arrangements.

For the full treaty background, see our India-Philippines DTAA guide.

Frequently Asked Questions

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

Article 11(2)(a) caps dividends at 15% where the beneficial owner is a company holding at least 10% of the shares of the Indian paying company. Every other case - individuals and companies below that threshold - falls to Article 11(2)(b) at 20%, which equals India's domestic rate and offers no rate relief at all.

Is there an FTS withholding rate for payments to the Philippines?

No. The India-Philippines DTAA has no fees-for-technical-services article at all. Technical, managerial and consultancy fees paid to a Philippine enterprise are business profits under Article 7, taxable in India only if the enterprise has a permanent establishment here; other cases fall to the residence-only Article 23. There is no gross FTS rate to apply.

When does the 15% royalty cap actually apply?

Only when the Philippine payer is registered with the Philippine Board of Investment, or the Indian payer is acting under a collaboration agreement approved by the Government of India (Article 13(2)). If neither condition is met, Article 13(1) leaves the royalty to India's full domestic withholding rate of 20%, with no treaty cap at all.

Is there any exemption for interest paid to Philippine government bodies?

Yes. Article 12(3)(a) exempts interest arising in one State where it is derived and beneficially owned by the Government, a political subdivision, a local authority, or the Central Bank of the other Contracting State. A second limb covers lending institutions specified in letters exchanged between the two competent authorities, but no current list of such institutions has been verified.

Do I need a Tax Residency Certificate to claim the DTAA rate?

Yes. The Philippine recipient needs a valid Tax Residency Certificate and must electronically file Form 41 (formerly Form 10F) before the reduced treaty rate applies at source. Without this documentation, the Indian payer may correctly withhold at the higher domestic rate under the Income-tax Act, 2025.

Does the MLI reduce any of these withholding rates further?

No. The Philippines has never signed the Multilateral Instrument, so the India-Philippines DTAA is not a Covered Tax Agreement. None of the MLI's provisions, including the Principal Purpose Test, apply to any rate on this page - anti-abuse scrutiny rests entirely on India's domestic GAAR.