India to Thailand Withholding Tax Rates Under DTAA

India to Thailand Withholding Tax Rates Under DTAA

When an Indian entity makes payments to a Thai resident — whether dividends, interest, royalties, or fees for technical services — the payment is subject to withholding tax (TDS) under Indian domestic law. The India-Thailand DTAA, signed at Bangkok on 29 June 2015 and effective in India from 1 April 2016, provides reduced withholding rates that cut the domestic rate in half across all major categories.

The hallmark of the India-Thailand DTAA is its simplicity: a uniform 10% rate applies to dividends, interest, and royalties. Notably, the treaty has no separate article for fees for technical services (FTS) — unlike many other Indian DTAAs, royalties and FTS are not combined under Article 12, so FTS payments fall to India's domestic Section 115A rate (20%) or, where the Thai provider has a permanent establishment in India, to Article 7 business profits. Under Section 90(2) of the Income Tax Act, a taxpayer may apply whichever rate — the DTAA rate or the domestic rate — is more beneficial. For a comprehensive overview of the full treaty, see our India-Thailand DTAA complete guide.

Dividend Withholding Rates

Under Article 10(2) of the India-Thailand DTAA, dividends paid by an Indian company to a Thai beneficial owner are subject to a maximum withholding rate of 10% of the gross amount. This is a flat rate with no tiered structure based on shareholding percentage.

Key points for dividends:

The 10% rate provides a 50% reduction compared to India's domestic rate of 20%. While this rate is higher than the 5% available under the India-Malaysia DTAA, it still represents significant savings for Thai investors receiving dividends from Indian companies.

Indian companies distributing dividends to Thai shareholders must deduct TDS at 10% and file Form 15CA electronically before making the remittance. The beneficial ownership requirement means the Thai recipient must be the true economic owner of the dividend — conduit arrangements designed to access treaty rates may be challenged under the MLI's Principal Purpose Test.

Interest Withholding Rates

Article 11 of the India-Thailand DTAA governs interest income. The treaty provides a general rate of 10% and complete exemption for government-related interest payments.

Key points for interest:

The 10% rate halves the domestic rate of 20%, providing meaningful savings for Thai financial institutions and lenders providing financing to Indian borrowers. The full exemption for government and central bank interest supports sovereign lending and bilateral development finance.

The term "interest" covers income from government securities, bonds, debentures, and all other income treated as income from debt claims under Indian domestic law. Premium payments on debt instruments are also included. If interest is connected with a permanent establishment in India, the interest is taxed as business profits under Article 7 rather than under Article 11.

Royalty Withholding Rates and the Absence of an FTS Article

Article 12 of the India-Thailand DTAA covers royalties at a uniform 10% withholding rate. Unlike many other Indian DTAAs, Article 12 does not extend to fees for technical services — the India-Thailand treaty, like India's treaties with Saudi Arabia and the UAE, has no dedicated FTS provision.

No dedicated FTS article:

Because the India-Thailand treaty has no FTS provision and its royalties article does not cover services, payments for managerial, technical, or consultancy services rendered by a Thai resident to an Indian entity are not eligible for a reduced treaty rate. Where the Thai provider has no permanent establishment in India, the Indian payer withholds tax at the domestic Section 115A rate (20%, plus applicable surcharge and cess). Where the Thai provider does have a PE in India, the fee income is instead taxed as business profits attributable to that PE under Article 7, at India's foreign-company tax rate.

This is a materially different position from DTAAs that combine royalties and FTS under Article 12 at a reduced treaty rate — Thai service providers should not assume the 10% royalty rate extends to their technical or consultancy fees.

Capital Gains Treatment

Article 13 of the India-Thailand DTAA addresses capital gains taxation:

Immovable property: Gains from the alienation of immovable property situated in India are taxable in India at applicable domestic rates (currently 12.5% for long-term capital gains — listed equity shares qualify as long-term after 12 months, unlisted shares and most other assets after 24 months).

Shares of immovable property-rich companies: Gains from shares of a company whose property consists directly or indirectly principally of immovable property situated in India may be taxed in India at domestic rates (Article 13(4)).

Business assets: Gains from the alienation of movable property forming part of the business property of a PE in India are taxable in India.

Other shares: Under Article 13(5), gains from the alienation of shares of a company resident in India may be taxed in India. The treaty does not cap the rate, meaning Indian domestic capital gains tax rates apply.

Thai residents who pay capital gains tax in India can claim a foreign tax credit in Thailand to avoid double taxation.

How to Apply Reduced Rates

Thai residents seeking reduced treaty rates must complete the following steps:

Step 1: Obtain Tax Residency Certificate (TRC)

Obtain a Tax Residency Certificate from the Revenue Department of Thailand (Krom Sanphakon). The TRC must certify that the recipient is a tax resident of Thailand for the relevant fiscal year.

Step 2: File Form 10F

Furnish Form 10F on the Indian Income Tax e-filing portal, providing details such as name, status, Thai TIN, period of residential status, and the nature of income being received.

Step 3: Submit Self-Declaration

Provide a self-declaration to the Indian payer confirming beneficial ownership, absence of PE in India (where applicable), and that the arrangement has a genuine business purpose. This last requirement is particularly important given the MLI's Principal Purpose Test.

Step 4: Lower Withholding Certificate (Optional)

If needed, apply to the Indian Assessing Officer under Section 197 for a lower or nil withholding certificate. This is useful for recurring high-value payments where the payer needs formal authorization to apply the treaty rate.

Step 5: Indian Payer Compliance

The Indian payer must deduct TDS at 10% under Section 195, file Form 15CA electronically before remittance, and obtain Form 15CB from a Chartered Accountant for payments exceeding INR 5 lakh.

Domestic Rates vs Treaty Rates Comparison

The India-Thailand DTAA's uniform 10% rate delivers consistent 50% savings across all income categories:

The uniform rate structure for dividends, interest, and royalties is a significant practical advantage — unlike many other DTAAs with tiered rates, sub-categories, and complex conditions, the India-Thailand treaty's flat 10% rate on those categories minimizes classification disputes and simplifies TDS computation. FTS is the one category where no treaty relief is available. Beacon Filing's tax advisory team can help structure cross-border payments to optimize tax efficiency.

Common Mistakes and Compliance Tips

Here are the most common errors encountered in India-Thailand cross-border tax compliance:

Mistake 1: Not obtaining TRC in advance. The TRC must be obtained and provided to the Indian payer before the payment date. Retroactive claims require filing a tax return and claiming a refund, which delays cash flow by 12-24 months.

Mistake 2: Misclassifying income types. While the uniform 10% rate reduces the practical impact of misclassification, correctly categorizing payments as royalties vs. FTS vs. business profits still matters — particularly where a PE exists, in which case income may be taxed at higher domestic corporate rates under Article 7.

Mistake 3: Ignoring PE implications. If a Thai company has a PE in India, income attributable to that PE — including fees for technical services, which have no treaty rate to begin with — is taxed as business profits at India's foreign-company tax rate (35%, effective approximately 38.22% with surcharge and cess), not at the 10% treaty rate that applies to royalties. Incorrectly claiming treaty rates for PE-attributable income can result in reassessment, interest, and penalties.

Mistake 4: Overlooking MLI requirements. The Principal Purpose Test now applies to the India-Thailand DTAA. Arrangements structured primarily to access treaty benefits — such as routing transactions through Thailand without genuine business substance — may be challenged. Documentation of business purpose is essential.

Mistake 5: Omitting Form 15CA/15CB filing. Even when the 10% treaty rate applies, the Indian payer must file Form 15CA before remittance and obtain Form 15CB for payments exceeding INR 5 lakh. Non-compliance attracts penalties under Section 271-I.

For professional assistance with India-Thailand cross-border tax compliance, contact Beacon Filing's FEMA and RBI compliance team.

Frequently Asked Questions

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

Under the India-Thailand DTAA, dividends paid by an Indian company to a Thai beneficial owner are subject to a maximum withholding rate of 10% of the gross amount. This is a flat rate with no tiered structure based on shareholding percentage, providing a 50% reduction from the domestic rate of 20%.

Are all income categories taxed at the same rate under this DTAA?

No. Dividends, interest, and royalties share a uniform 10% treaty rate (with government-related interest fully exempt), but fees for technical services have no treaty rate at all — the India-Thailand DTAA contains no separate FTS article, so such payments are taxed under India's domestic Section 115A rate (20%), or as business profits under Article 7 at the foreign-company rate if the Thai provider has a PE in India.

Is there a reduced treaty rate for FTS under the India-Thailand DTAA?

No. Unlike many Indian DTAAs, the India-Thailand treaty has no dedicated fees-for-technical-services article, and its royalties article does not extend to services. Managerial, technical, and consultancy service payments to Thai residents therefore do not benefit from the 10% treaty rate; they are taxed under domestic law absent a PE, or under Article 7 if a PE exists.

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

Under Article 5, a Thai enterprise creates a services PE in India if it furnishes services through employees for the same or connected project for more than 183 days in any 12-month period. This is a relatively generous threshold but requires careful tracking of cumulative days.

Can excess tax withheld be refunded?

Yes. If an Indian payer deducts tax at the domestic rate of 20% instead of the treaty rate of 10%, the Thai recipient can file an Indian income tax return claiming a refund of the excess, subject to the applicable return-filing deadlines (condonation of delay is possible in limited cases).

How does the MLI affect this treaty?

The MLI does not change the stated withholding rates of 10%. However, the Principal Purpose Test (PPT) introduced by the MLI means treaty benefits may be denied if the principal purpose of an arrangement was to obtain treaty benefits without genuine business substance.

Are there exemptions for government payments?

Yes. Interest derived and beneficially owned by the Government of Thailand, a political sub-division or local authority, the Bank of Thailand, or the Export Import Bank of Thailand is fully exempt from Indian withholding tax under Article 11(3). The competent authorities can also agree to extend the exemption to other institutions.