Withholding Tax Rates: India to Poland Under DTAA

India to Poland Withholding Tax Rates Under DTAA

When an Indian company makes payments to a Polish resident — whether dividends, interest, royalties, or fees for technical services (FTS) — the Indian payer must deduct tax 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-Poland DTAA, originally signed on 21 June 1989 and substantially revised by the 2013 Protocol (effective 1 June 2014), provides significantly reduced withholding tax rates compared to India's domestic rates.

The taxpayer is entitled to apply the lower of the treaty rate or the domestic rate under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961). In the case of the India-Poland DTAA, all treaty rates are equal to or lower than domestic rates, making the treaty beneficial across every payment category. For a comprehensive understanding of the full treaty provisions, refer to our India-Poland DTAA complete guide.

Dividend Withholding Rates

Under Article 11 of the India-Poland DTAA (as revised by the 2013 Protocol), dividends paid by an Indian company to a Polish resident are subject to a maximum withholding rate of 10%:

Key points on dividends:

• Unlike many of India's DTAAs, the India-Poland treaty does not differentiate based on shareholding percentage — a uniform 10% rate applies whether the holding is 5%, 25%, or 100%.
• The 10% rate represents a substantial 50% reduction from the domestic rate of 20%.
• The beneficial owner test requires the Polish recipient to be the actual economic owner, not merely a conduit or agent.
• Under the MLI's Principal Purpose Test (PPT), treaty benefits may be denied if obtaining the benefit was one of the principal purposes of an arrangement.

Polish companies with Indian subsidiaries benefit significantly from this flat 10% rate. Our FDI advisory team helps optimise holding structures for maximum treaty benefit.

Interest Withholding Rates

Article 12 of the India-Poland DTAA governs the taxation of interest income. Interest arising in India paid to a Polish resident is subject to the following rates:

The treaty provides particularly favourable treatment for government-related and export-financing interest: a complete exemption applies to interest derived and beneficially owned by Polish government entities or the National Bank of Poland (Article 12(3)(a)), and to interest on loans or credits extended or endorsed by Bank Gospodarstwa Krajowego to the extent attributable to export-import financing, by a public external-trade financing institution, or by any other lender where the loan or credit is approved by the Government of India (Article 12(3)(b)). The 10% general rate covers:

• Interest on loans from Polish banks and financial institutions to Indian borrowers
• Interest on bonds, debentures, and government securities held by Polish investors
• Interest on external commercial borrowings (ECBs) from Polish lenders
• Interest on trade credit and supplier financing arrangements

Polish banks lending to Indian entities should ensure proper documentation is in place before disbursement to secure the reduced rate from the first payment. Our cross-border payments team assists with structuring compliant interest payment flows.

Royalty and FTS Withholding Rates

Article 13 of the India-Poland DTAA covers both royalties and fees for technical services under a single article with a uniform maximum rate of 15%:

Critical observations:

• The 2013 Protocol significantly reduced the royalty/FTS rate from the original 22.5% to 15%, a reduction of 7.5 percentage points from the pre-protocol rate.
• This provides a clear 5 percentage point saving over the current domestic rate of 20%.
• The definition of FTS includes managerial, technical, and consultancy services, which is broader than some other Indian treaties that require a "make available" clause.
• Polish technology companies licensing software, providing IT consulting, or offering technical services to Indian entities benefit from the reduced 15% withholding.

For businesses with significant royalty or FTS flows, our transfer pricing team ensures that intercompany payments are structured to comply with arm's length principles while maximising treaty benefits.

Capital Gains Treatment

Under Article 14 of the India-Poland DTAA, capital gains are treated as follows:

• Immovable property: Gains from sale of immovable property situated in India are taxable in India at applicable Indian domestic rates.
• Shares in property-rich companies: If shares derive their value principally from immovable property in India, the gains may be taxed in India.
• PE-related movable property: Gains from alienation of movable property forming part of the business property of a PE in India are taxable in India.
• Ships and aircraft: Gains from alienation of ships or aircraft operated in international traffic are taxable only in the Contracting State of which the alienator is a resident (Article 14(3)).
• Other shares: Under Article 14(5), gains from shares of an Indian company other than property-rich shares may also be taxed in India — the treaty does not reserve share gains to the seller's residence State.
• Other property: Gains from alienation of any residual property (Article 14(6)) are taxable only in the State of residence of the alienator (i.e., Poland for Polish residents).

Polish investors should note that India retains taxing rights over gains on shares of Indian companies under Article 14(4)-(5) whether or not the company is property-rich; only residual non-share gains fall exclusively to Poland under Article 14(6).

How to Apply Reduced Rates

To apply the DTAA rates instead of domestic rates, follow these steps:

Documentation Requirements

• Tax Residency Certificate (TRC): The Polish recipient must obtain a TRC from the Krajowa Administracja Skarbowa (Polish National Revenue Administration) for the relevant financial year.
• Form 41 (formerly Form 10F): Must be filed electronically on the Indian income tax e-filing portal. Contains details including name, status, nationality, tax identification number (NIP), period of residential status, and address in Poland.
• Self-declaration: Confirming beneficial ownership of the income and no PE in India (where applicable).
• No PE declaration: The Polish entity must confirm it does not have a PE in India to which the payment is attributable.

Payer Compliance Steps

• Verify the TRC and Form 41 before the first payment.
• Deduct TDS at the applicable treaty rate under section 393(2).
• File Form 145 (formerly Form 15CA) electronically before remittance.
• Obtain Form 146 (formerly Form 15CB) from a Chartered Accountant for remittances exceeding INR 5 lakh.
• Deposit TDS with the government within the prescribed timeline (7th of the following month).

For Polish companies setting up operations in India, establishing proper withholding compliance from day one avoids penalties and interest under section 398 of the Income-tax Act, 2025 (section 201 of the Income-tax Act, 1961).

Domestic Rates vs Treaty Rates Comparison

The following comprehensive comparison helps determine when to apply treaty rates versus domestic rates:

Important: When applying the domestic rate, surcharge and health & education cess (currently 4%) are added, making the effective domestic rate approximately 20.8%-21.84% depending on income level. When applying the treaty rate, no surcharge or cess applies. Therefore, the actual savings are even greater than the headline rate differences shown above.

Our tax advisory team provides detailed withholding rate analyses specific to your transaction structure and payment volumes.

Common Mistakes and Compliance Tips

Based on our experience advising Polish businesses with India operations, here are the most common withholding tax errors and how to avoid them:

Mistake 1: Using Pre-Protocol Rates

The 2013 Protocol significantly reduced rates from the original 1989 treaty. Ensure your tax team is applying the current rates (10% for dividends/interest, 15% for royalties/FTS) and not the original higher rates. The Protocol became effective for Indian tax purposes from 1 April 2015.

Mistake 2: Applying Treaty Rate Without Valid TRC

Indian tax authorities frequently disallow treaty benefits when the TRC is expired, does not cover the relevant period, or is not obtained from the correct Polish authority. Always ensure the TRC from the Krajowa Administracja Skarbowa covers the specific financial year of the payment.

Mistake 3: Not Filing Form 41 Electronically

Since the introduction of electronic filing requirements, paper-based Form 41 submissions are not accepted. The Polish recipient must have a valid Indian PAN and file Form 41 through the income tax e-filing portal.

Mistake 4: Ignoring MLI Principal Purpose Test

Since the India-Poland DTAA is covered by the MLI, the PPT applies. Treaty benefits may be denied if one of the principal purposes of an arrangement was obtaining the treaty benefit. Ensure that cross-border structures have genuine business substance beyond tax savings.

Mistake 5: Missing Forms 145 and 146 Filing

Failure to file Form 145 before remittance or obtain Form 146 from a CA is a compliance violation of the remittance-reporting requirement in section 397(3)(d) of the Income-tax Act, 2025 (section 195(6) of the Income-tax Act, 1961) and the rules prescribed under it, regardless of whether the correct TDS rate was applied. Banks may hold remittances without proper Form 145 submission.

For end-to-end compliance support, our compliance outsourcing service handles all withholding tax documentation and filings for Polish-Indian cross-border payments.

Mistake 6: Overlooking the Government Interest Exemption

Interest derived and beneficially owned by the Polish Government, political subdivisions, local authorities, or the National Bank of Poland is fully exempt under Article 12(3)(a), and interest on loans or credits extended or endorsed by Bank Gospodarstwa Krajowego for export-import financing — or on loans approved by the Government of India — is exempt under Article 12(3)(b). Many Indian payers are unaware of these exemptions and unnecessarily deduct TDS at 10% on such payments. This results in unnecessary withholding and administrative burden for the Polish recipient to claim refunds.

Additional Compliance Considerations

Indian companies making regular payments to Polish entities should establish a compliance calendar tracking TRC validity dates, Form 41 renewal requirements, and Forms 145 and 146 filing deadlines. Our tax advisory team can set up automated compliance workflows to ensure treaty benefits are claimed consistently without gaps or penalties. Poland's membership in the European Union and its strong regulatory framework make it a reliable treaty partner, but the bilateral Limitation of Benefits clause under Article 28A requires that arrangements have genuine economic substance beyond tax advantages.

Frequently Asked Questions

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

Under the India-Poland DTAA (as amended by the 2013 Protocol), dividends are subject to a maximum withholding tax rate of 10% of the gross amount. This applies uniformly regardless of the shareholding percentage, providing a 10 percentage point saving over the 20% domestic rate.

Is interest paid to Polish government entities exempt from Indian tax?

Yes. Under Article 12(3)(a), interest derived and beneficially owned by the Government of Poland, its political subdivisions, local authorities, or the National Bank of Poland is exempt from Indian withholding tax. Article 12(3)(b) also exempts interest on loans or credits extended or endorsed by Bank Gospodarstwa Krajowego (for export-import financing), a public external-trade financing institution, or any other lender where the loan or credit is approved by the Government of India.

What documents must a Polish company provide to claim reduced withholding?

A Polish company must provide a Tax Residency Certificate from the Krajowa Administracja Skarbowa (Polish National Revenue Administration), electronically filed Form 41 on the Indian income tax portal, a self-declaration of beneficial ownership, and a no-PE declaration if applicable.

How did the 2013 Protocol change the withholding rates?

The 2013 Protocol reduced dividend and interest rates to 10% (from higher original rates) and royalty/FTS rates to 15% (from 22.5% under the original 1989 treaty). These revised rates apply for Indian tax purposes from the financial year beginning 1 April 2015.

Does the MLI affect the India-Poland DTAA withholding rates?

The MLI does not change the withholding tax rates themselves, but it adds anti-abuse provisions including the Principal Purpose Test (PPT). Under the PPT, treaty benefits may be denied if one of the principal purposes of an arrangement was to obtain the benefit. The MLI provisions apply to withholding taxes from 1 April 2020 for India.

Can a Polish resident apply for a lower withholding certificate?

Yes, under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961), a non-resident can apply to the Assessing Officer for a certificate authorising the payer to deduct TDS at a lower rate or nil rate if the actual tax liability is lower than the withholding amount calculated at the treaty rate.

What happens if the Indian payer deducts TDS at the wrong rate?

If TDS is short-deducted, the payer faces penalty under section 398 plus interest at 1% per month under section 398(3)(a). The Polish recipient can claim a refund of excess TDS through Indian income tax return filing or through the Mutual Agreement Procedure (MAP) under Article 26 of the treaty.