India-Switzerland DTAA: Withholding Tax Rates on Dividends, Interest, Royalties and FTS

India to Switzerland Withholding Tax Rates Under DTAA

The India-Switzerland DTAA provides reduced withholding tax rates for cross-border payments between the two countries. These rates apply uniformly at 10% across all major income categories: dividends, interest, royalties, and fees for technical services. This represents a significant reduction from India's domestic withholding rate of 20% (plus surcharge and cess).

One point causes persistent confusion and is worth stating plainly: the Indian rate on dividends paid to Swiss residents has always been 10%. The widely reported 5% was never an Indian rate. It was Switzerland's own unilateral practice, applied from 2021 to Swiss-source dividends paid to Indian residents, and Switzerland withdrew it with effect from 1 January 2025. On the Indian side, the Supreme Court held in Assessing Officer v. Nestle SA (19 October 2023) that the treaty's most-favoured-nation clause is not self-executing: it takes effect only through a notification under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961), and none has been issued. An Indian payer should never withhold at 5% on a dividend to Switzerland, in any year.

For Indian payers making remittances to Switzerland, understanding the correct withholding rates is essential for compliance under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), under which tax is deducted at the rates in force. For a complete treaty overview, see our India-Switzerland DTAA complete guide.

Dividend Withholding Rates

The dividend withholding provisions have been the most affected by recent developments:

There is no reduced tier for substantial shareholdings. Unlike many of India's treaties, Article 10(2) sets a single 10% cap regardless of the size of the holding, and the 10% is inclusive of surcharge and cess.

The MFN Clause, and Why It Gives No Lower Indian Rate

Paragraph 5 of the Protocol to the India-Switzerland DTAA provides that if India later agrees with a third state that is an OECD member to a lower rate, or a narrower scope, on dividends, interest, royalties or fees for technical services, the same treatment applies under this treaty. In August 2021 Switzerland took the view that Lithuania and Colombia joining the OECD triggered the clause, and unilaterally began applying 5% to Swiss-source dividends paid to Indian residents.

The Indian Supreme Court rejected the automatic-operation theory in Assessing Officer v. Nestle SA (19 October 2023), holding that:

• the MFN clause is not self-executing and takes effect only through a specific notification under section 159;
• a "third State which is a member of the OECD" means a state that was already an OECD member when it entered into its treaty with India — a later accession does not retrospectively trigger the clause;
• without that notification, and none has been issued for this treaty, the lower rate cannot be claimed in India.

Switzerland then withdrew its unilateral statement with effect from 1 January 2025, so Swiss withholding on Swiss-source dividends paid to Indian residents returned to the treaty's 10%. That withdrawal is a Swiss-side event and changed nothing for Indian payers, whose rate was 10% throughout.

What About Earlier Years?

Two different questions get conflated here. For Indian withholding on dividends, interest, royalties and FTS paid to Swiss residents, the rate is 10% for every year. Nestle is a ruling on what the treaty always meant, not a rate change effective from a date, so there is no earlier period in which 5% was correct in India and no transitional claim to preserve. For Swiss withholding on Swiss-source dividends paid to Indian residents, Switzerland did apply 5% between its statement of 13 August 2021 and 31 December 2024; Indian recipients treated that way should keep their documentation, but that is a question of Swiss practice, settled prospectively from 1 January 2025.

Interest Withholding Rates

Interest payments from India to Switzerland are governed by Article 11:

The 10% rate on interest has not been affected by the MFN clause suspension. The arm's length limitation is important: if interest paid between related parties exceeds what would have been agreed upon between independent parties, the excess is not eligible for the treaty rate and is taxed under domestic law.

Special Interest Provisions

• ECB interest: Interest on External Commercial Borrowings from Swiss banks and financial institutions qualifies for the 10% treaty rate
• Bond interest: Interest on listed bonds and debentures follows the same 10% cap
• No recipient-government exemption: Article 11(3) contains no general exemption for interest merely because it is paid to the Swiss government or the Swiss National Bank. The exemptions are loan-side and direction-specific, and the Indian institution list in Article 11(3)(a) — the Government of India, a political sub-division, a statutory body or local authority, the Export-Import Bank of India, the Reserve Bank of India, IFCI, IDBI, the National Housing Bank or SIDBI — governs interest arising in Switzerland, not in India
• Export credit interest: interest on a loan or credit made, guaranteed or insured under the Swiss provisions regulating the Export or Investment Risk Guarantee (today administered through SERV) is exempt from Indian tax and taxable only in Switzerland, under Article 11(3)(b)
• Approved loans: interest arising in India on a loan or other indebtedness approved by the Government of India is exempt from Indian tax under Article 11(3)(d)

Royalty and FTS Withholding Rates

Article 12 of the India-Switzerland DTAA covers both royalties and fees for technical services:

Royalties under this treaty include payments for the use of, or the right to use, any copyright (including software), patent, trademark, design, model, plan, secret formula or process, or for the use of industrial, commercial, or scientific equipment. Given the significant presence of Swiss pharmaceutical and technology companies in India (such as Novartis and Roche), the royalty provisions are particularly relevant.

Fees for technical services cover payments for managerial, technical, or consultancy services — see the full breakdown of fees for technical services under Article 12. Indian subsidiaries of Swiss companies frequently make FTS payments to their parent companies for management support, technology transfer, and consulting services, all of which benefit from the 10% treaty rate versus the domestic 20%.

For companies with significant royalty or FTS flows, our transfer pricing services can help ensure arm's length pricing compliance.

Capital Gains Treatment

Capital gains under the India-Switzerland DTAA follow a nuanced framework based on asset type:

The common belief that Swiss residents can sell shares in Indian companies free of Indian tax is wrong. Article 13(5)(a) states residence-only taxation as the general rule for shares, but Article 13(5)(b) carves out shares of a company that is a resident of India, and India retains source taxation of those gains under its domestic law. The treaty then resolves the double tax by an unusual reversal in Article 23(1)(b): it is India that allows a credit for the Swiss tax on such gains. On the Swiss side, the Article 23(2)(a) exemption applies to capital gains only where actual taxation of those gains in India is demonstrated. India's domestic indirect-transfer provisions (section 9 of the Income-tax Act, 2025; section 9(1)(i) of the Income-tax Act, 1961) apply in addition, to offshore transfers deriving substantial value from Indian assets.

How to Apply Reduced Rates

To avail the reduced withholding rates under the India-Switzerland DTAA, the following steps must be followed:

Tax Residency Certificate (TRC)

The Swiss resident must obtain a certificate of residence from the Swiss Federal Tax Administration or the relevant cantonal tax authority. The TRC is mandatory under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961) and must cover the relevant income period.

Form 41 (formerly Form 10F)

Form 41 must be filed electronically on the Indian Income Tax e-filing portal. This self-declaration provides details including status, country of incorporation, Swiss tax identification number, period of residential status, and registered address.

Lower Withholding Certificate (Section 395(1))

If the Indian payer is reluctant to apply the lower treaty rate, the Swiss resident can apply for a Lower Withholding Certificate from the Indian Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961). This certificate explicitly specifies the rate at which TDS should be deducted.

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

The requirement is threshold-based under Rule 37BB, not universal:

• Where the remittance is chargeable to tax and such remittances aggregate more than INR 5 lakh in the financial year, a Chartered Accountant must issue Form 146 certifying the nature of the payment, the applicable DTAA article and the correct TDS rate; the payer then files Form 145 Part C, quoting the Form 146 acknowledgement number.
• Where the taxable remittances do not exceed INR 5 lakh in the financial year, only Form 145 Part A is required and no Form 146 is needed.
• Form 145 is furnished electronically to the income-tax department before the remittance, and the authorised dealer bank collects it before releasing funds. It is not a filing made to the Reserve Bank of India.

Proper compliance with these procedures is essential. Failure to deduct TDS at the correct rate can result in the payer being treated as an assessee in default under section 398 of the Income-tax Act, 2025 (section 201 of the Income-tax Act, 1961). For assistance with FEMA compliance for Switzerland remittances, see our FEMA and RBI compliance services.

Domestic Rates vs Treaty Rates Comparison

A comprehensive comparison reveals the full extent of tax savings available under the treaty:

When DTAA rates apply, no surcharge or health and education cess is levied. This means the treaty rate of 10% is a flat rate, whereas the effective domestic rate ranges from 20.8% to 21.84% after adding surcharge (2%-5%) and cess (4%). For Swiss multinationals with Indian subsidiaries making regular cross-border payments, the cumulative annual savings can be substantial.

Companies looking to establish or expand their India presence from Switzerland should review our guide to registering a company in India from Switzerland.

Common Mistakes and Compliance Tips

Based on extensive experience advising India-Switzerland cross-border transactions, here are the most frequent errors and best practices:

Mistakes to Avoid

• Withholding at 5% on dividends on an MFN theory: the 5% rate was never available on the Indian side in any year — it was Switzerland's own unilateral practice on Swiss-source dividends, withdrawn from 1 January 2025. Deducting 5% instead of 10% is a short deduction, exposing the payer to demands under section 398 and interest under section 398(3)(a)
• Missing or outdated TRC: The TRC must be current and cover the period of income accrual. An expired TRC means no DTAA benefit
• Confusing cantonal and federal tax residency: Switzerland has a complex federal structure. The TRC must be from an authority recognised by the Indian tax department
• Ignoring transfer pricing for related-party payments: Royalties and FTS between Swiss parent companies and Indian subsidiaries must satisfy arm's length standards under both the treaty and Indian transfer pricing rules
• Failing to file Form 41 electronically: Paper submissions are no longer accepted. The form must be filed on the Indian e-filing portal

Compliance Tips

• Establish an annual calendar for TRC renewal and Form 41 filing
• Document the commercial rationale for all cross-border arrangements to withstand scrutiny under India's GAAR and the treaty's anti-conduit provision — note that the MLI Principal Purpose Test does not apply to this treaty, which Switzerland did not list as a Covered Tax Agreement
• Maintain beneficial ownership evidence: board resolutions, decision-making records, and substance documentation in Switzerland
• For large or recurring payments, consider obtaining a section 395(1) certificate upfront to avoid cash flow disruption
• Treat the MFN position as settled: after Nestle, only a notification under section 159 could change the Indian rate, and none has been issued
• Consult our tax advisory team for complex structuring questions

Frequently Asked Questions

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

10% under Article 10(2), and that has been the Indian rate in every year. The 5% figure often quoted was never an Indian rate: it was Switzerland's own unilateral practice, applied from August 2021 to Swiss-source dividends paid to Indian residents and withdrawn from 1 January 2025. On the Indian side, Assessing Officer v. Nestle SA (Supreme Court, 19 October 2023) held the MFN clause is not self-executing without a notification under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961), and none has been issued.

Did the MFN clause ever reduce Indian withholding on interest, royalties or FTS?

No. Interest, royalties and fees for technical services have been capped at 10% under Articles 11(2) and 12(2) throughout, and after Nestle no MFN-based reduction is available on the Indian side for any of the four income types without a notification under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961). Switzerland's 2025 withdrawal of its unilateral MFN practice concerns Swiss withholding on Swiss-source income, principally dividends.

What documentation is required for a Swiss company to claim DTAA benefits in India?

A Swiss company needs: (1) a Tax Residency Certificate from the Swiss Federal Tax Administration or cantonal authority, (2) electronically filed Form 41 on the Indian Income Tax portal, (3) a beneficial ownership self-declaration, and (4) supporting documentation for the nature of the payment.

Can withholding tax paid in India be credited against Swiss taxes?

Yes, but not automatically and not by exemption. Dividends, interest, royalties and FTS taxed in India under Articles 10, 11 and 12 fall under Article 23(2)(b): on request, Switzerland grants either a credit for the Indian tax (capped at the Swiss tax attributable to that income), a lump-sum reduction of Swiss tax, or a partial exemption consisting at minimum of deducting the Indian tax from the gross amount. The relief must be claimed with the cantonal authority.

What is the service PE threshold for Swiss companies in India?

Under Article 5(2)(l), inserted by the 2000 amending protocol, a service PE arises where a Swiss enterprise furnishes technical services in India through employees or other personnel for more than 90 days in any twelve-month period — and for more than 30 days where the services are furnished to a related enterprise within the meaning of Article 9(1). Where a service PE does arise, paragraph 2 of the Protocol lets the enterprise elect to be taxed at 10% of the gross amount under Article 12(2) instead of on a net basis under Article 7.

Does the DTAA cover gains from cryptocurrency or digital asset sales?

The DTAA does not specifically address cryptocurrency or digital assets, as it was signed in 1994 before these instruments existed. Such gains would likely fall under the residual capital gains article or other income provisions, but the treatment is uncertain and may depend on the specific characterisation of the digital asset under each country's domestic law.

How long does it take to obtain a Swiss Tax Residency Certificate?

Processing times vary by canton but typically take 2-4 weeks for companies and individuals. It is advisable to apply well in advance of the income accrual date to ensure the TRC is available when needed for DTAA benefit claims. The Swiss Federal Tax Administration may expedite requests in urgent cases.