Withholding Tax Rates: India to Russia Under DTAA

India to Russia Withholding Tax Rates Under the DTAA

When an Indian entity pays a Russian resident — dividends, interest, royalties, or fees for technical services — 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-Russia DTAA (ITD consolidated text), signed 25 March 1997 and in force from 11 April 1998, reduces the rate on all four categories to a uniform 10%, and under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the taxpayer applies whichever of the domestic or treaty rate is more beneficial.

Dividend Withholding Rate — Article 10

Dividends paid by an Indian company to a Russian beneficial owner may be taxed in India, but the rate is capped — "if the beneficial owner of the dividends is subject to tax thereon in the other State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends" (Article 10(2)).

A common misreading is to expect a lower or nil rate for a substantial Russian shareholder. There is no such tier: Article 10(2) sets one flat 10% cap for every beneficial owner, and the variable that actually changes the outcome is whether the recipient is subject to tax on the dividend in Russia. A Russian parent that is exempt on the dividend under its own domestic law does not meet this condition, and the cap does not apply — the Indian payer must withhold at the full domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) instead. Confirming the recipient's home-country tax treatment of the dividend, not just its shareholding percentage, is therefore part of the diligence before applying the 10% rate.

Interest Withholding Rate — Article 11

Interest arising in India and paid to a Russian resident is capped at 10% of the gross amount where the recipient is the beneficial owner (Article 11(2)) — a single rate, with no separate tier for banks or financial institutions.

Article 11(3) exempts interest only where it is "derived and beneficially owned by" the Government, a political sub-division, or a local authority of the other State, or its Central Bank. A third limb extends this to "other Governmental agencies or financial institutions as may be specified and agreed to in an exchange of notes between the competent authorities" — but no such exchange of notes has ever been concluded on the ITD's consolidated text. In practice this means no Russian state-owned bank, export credit agency, or development-finance institution is named or exempt under this treaty; do not import an institution list from another India treaty. Note also that the PE carve-out sits at Article 11(5), not paragraph 4 (which only defines "interest"), and that Article 8(3) separately treats interest on funds connected with ship or aircraft operations as shipping income, outside Article 11 altogether.

Royalty and FTS Withholding Rate — Article 12

Article 12, titled "Royalties and Fees for Technical Services," covers both categories in a single provision, each capped at 10% of the gross amount (Article 12(2)).

"Royalties" is defined in Article 12(3) to include copyright in literary, artistic, or scientific works, patents, trademarks, designs or models, know-how, secret formulas, and information concerning industrial, commercial, or scientific experience, plus payments for the use of industrial, commercial, or scientific equipment. "Fees for technical services" is defined separately in Article 12(4) as payments for "any managerial, technical or consultancy services including the provision of services by technical or other personnel," excluding only amounts already covered by Article 14 (independent personal services) or Article 15 (dependent personal services) — a wider exclusion than treaties that exclude only the dependent-services article. Crucially, this definition has no make-available requirement, so routine managerial and consultancy fees fall within FTS even where no technical knowledge is transferred to the Indian payer.

The Protocol's turnkey-project provision is a genuine outlier worth flagging separately: where a construction or supervisory presence would otherwise exceed the Article 5(2)(j) 12-month PE threshold, and where the project meets all six Protocol paragraph 2 conditions, the competent authorities may agree to tax the supervisory fees at the Article 12 rate of 10% of the gross amount instead of full net-basis PE taxation — a materially better outcome for a qualifying long-duration turnkey contractor.

Capital Gains — Article 13

Capital gains are not withholding-tax items, but they affect compliance planning on cross-border transactions. Article 13(4) lets India tax gains on shares of an Indian company held by a Russian resident unconditionally — there is no land-rich test, no minimum shareholding, and no grandfathering date, unlike several of India's other treaties. Since the MLI took effect in India from 1 April 2021, its Article 9(4) adds a further source right over gains on shares or comparable interests — including partnership or trust interests — that derived more than 50% of their value from Indian immovable property within the preceding 365 days, reaching interests that Article 13(4)'s shares-only wording does not.

How to Apply the Reduced Rate

Tax Residency Certificate

The Russian resident must hold a Tax Residency Certificate issued by the Federal Tax Service of Russia (FNS), which also lets the Indian payer verify the certificate through the FNS's online service.

Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41 on the Indian income tax portal, together with a self-declaration of beneficial ownership and PE status in India.

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

The Indian payer files Form 145 online before remitting. A Chartered Accountant certifies the applicable rate in Form 146 only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without a section 395 certificate. Associated-enterprise transactions under Article 9 additionally require transfer-pricing certification in Form 48 (formerly Form 3CEB).

Lower or Nil Withholding Certificate

Where the applicable rate is uncertain, the non-resident 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 authorising a lower or nil rate of deduction.

Domestic Rates vs Treaty Rates Comparison

Note that the interest entry above, section 207(1) (Table, Sl. No. 3), reaches only interest received from Government or an Indian concern on money borrowed or debt incurred in foreign currency; rupee-denominated interest paid to a non-resident (for example, interest credited on an NRO account) that is not claimed under the treaty falls instead into section 207(1) (Table, Sl. No. 8) at the rates in force — slab rates rising to 30% for individuals, and 35% for foreign companies — rather than the 20% figure above. The DTAA's 10% cap under Article 11(2), by contrast, applies uniformly to interest arising in India regardless of currency, provided the beneficial-ownership and residency conditions are met, making the treaty rate more valuable still on rupee-denominated interest. The 10% treaty rate is also the final figure — unlike the domestic rates, no surcharge or health-and-education cess is added on top of it.

Common Mistakes and Compliance Tips

Assuming a shareholding tier reduces the dividend rate

There is no dividend tier in this treaty. A 10%, 26%, or 100% Russian shareholder all face the same 10% cap, conditioned only on the dividend being subject to tax in Russia.

Naming a specific bank as interest-exempt

Article 11(3)'s exemption reaches only the Government, its sub-divisions, local authorities, and the Central Bank. The clause's third limb, covering other agencies or institutions, was left open for a future exchange of notes that has never been concluded — do not treat any named Russian bank as exempt.

Overlooking the PE test

If the Russian recipient has a PE or fixed base in India and the income is effectively connected with it, the 10% rate does not apply — the income is taxed as business profits at the 35% foreign-company rate plus surcharge and cess instead.

Missing Forms 145 and 146

Form 145 must be filed for every remittance; Form 146 (the Chartered Accountant's certificate) is required only for a Part C remittance — a taxable remittance above INR 5 lakh made without a section 395 certificate. Filing after the remittance does not cure a compliance gap.

Treating the treaty rate as automatic

The 10% cap is not self-executing. Since 1 April 2021 the MLI's Principal Purpose Test applies to this treaty, and India's domestic General Anti-Avoidance Rules under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) run alongside it. A Russian recipient interposed with no commercial substance can be denied the reduced rate even where the TRC and Form 41 are in order.

Assuming an MFN clause can lower the rate below 10%

No most-favoured-nation clause exists in this treaty or its Protocol for dividends, interest, royalties, or FTS. The only MFN-flavoured text, Protocol paragraph 3, deals solely with the rate at which a PE's business profits may be taxed relative to third-country enterprises.

For the complete article-by-article treaty overview, including PE rules, capital gains, and anti-abuse provisions, see our comprehensive India-Russia DTAA guide, or our DTAA master guide for how India's treaty network compares.

Frequently Asked Questions

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

Under Article 10(2), dividends are capped at 10% of the gross amount, but only where the Russian beneficial owner is subject to tax on the dividend in Russia. There is no shareholding-based tier — the condition is about tax treatment at home, not ownership percentage. If the condition is not met, the domestic rate of 20% applies instead.

Is there a reduced or exempt rate for interest paid to Russian banks?

No. Article 11(2) caps general interest at a flat 10% for every beneficial owner, with no separate bank tier. Article 11(3) exempts interest entirely, but only for the Government, its political sub-divisions, local authorities, and the Central Bank of Russia — no other institution is named or exempt.

What is the FTS rate under the India-Russia DTAA?

Fees for technical services are capped at 10% under Article 12(2), the same provision and rate that applies to royalties. The definition in Article 12(4) has no make-available requirement, so managerial, technical, and consultancy services all qualify, excluded only where already covered by Article 14 or Article 15.

Do I need Form 146 for every payment to Russia?

Form 146, the Chartered Accountant's certificate, is required only for Part C of Form 145 — a taxable remittance above INR 5 lakh made without a section 395 certificate. Form 145 must still be filed online for every remittance to Russia, regardless of amount, before the payment is made, since it records the nature of the payment and the withholding rate applied.

Can the Indian tax authority deny the 10% treaty rate?

Yes. The Assessing Officer can deny the DTAA rate where the recipient is not the beneficial owner, a PE exists in India, the Article 10(2) subject-to-tax condition fails for dividends, or the arrangement fails India's domestic GAAR or the MLI's Principal Purpose Test, which applies to this treaty from 1 April 2021 for Indian withholding.

What happens if TDS is deducted at 20% instead of the treaty rate?

The Russian recipient can claim a refund of the excess TDS by filing an Indian income tax return. The payer may instead seek rectification, or apply in advance under section 395(2) of the Income-tax Act, 2025 (sections 195(2) and 195(3) of the Income-tax Act, 1961) for a determination of the correct lower rate before the next payment.