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DTAA Between India and USA: Tax Relief, TDS Rules & Filing Process (2025)
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The Double Taxation Avoidance Agreement (DTAA) between India and the USA is a crucial tax treaty for individuals and companies in both nations. This agreement determines how income earned in one country is taxed for residents of the other, preventing the same income from being taxed twice. Non-resident Indians (NRIs) must have income sources in India, Indian residents earning in the U.S., and businesses with cross-border investments. The India-USA Double Taxation Avoidance Agreement (DTAA) was signed to streamline taxation, encourage economic cooperation, and provide a clear framework for taxpayers, coming into effect to foster a more favourable investment climate between the two countries.
DTAA Between India and the USA - Quick Info
Here is a brief overview of the double taxation avoidance agreement between India and the CUSA, providing essential details.
Aspect | Details |
Full Form | Double Taxation Avoidance Agreement |
Countries Involved | India and the United States of America |
Year Signed | September 12, 1989 |
Effective Date | December 18, 1990 |
Income Types Covered | Salary, Property Income, Capital Gains, Interest, Dividends, Royalties, etc. |
Key Forms | Form 10F, Tax Residency Certificate (TRC), Form W-8BEN/W-8BEN-E, Form 15CA/15CB |
Tax Relief Methods | Exemption Method and Credit Method |
Governing Bodies | Income Tax Department (India) and Internal Revenue Service (IRS) (USA) |
Objective of the DTAA Between India and the USA
The primary goal of the DTAA agreement between India and the USA is to offer a fair and streamlined tax system for individuals and entities connected to both countries. This treaty aims to prevent double taxation, where the same income is taxed in India and the United States.
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Key Features of India-USA DTAA
The India-USA DTAA has several key features that define its application and benefits for taxpayers in both countries. These features establish who is covered and how relief is provided.
Scope of the agreement
The scope of the double tax avoidance agreement between India and the USA is comprehensive. It applies to taxes on income imposed by both countries, including the federal income tax in the U.S. and the income tax in India. It covers various types of income to ensure broad protection against double taxation.
Who can claim DTAA benefits (residents, companies, trusts, etc)?
The benefits of the DTAA can be claimed by a 'resident' of one or both contracting states. This includes individual residents, companies, partnerships, trusts, and other legal entities liable to tax in their home country based on domicile, residence, or place of management.
What are the Tax Relief Methods Used in India-USA DTAA?
The India-USA DTAA primarily uses the credit method for tax relief. This means that when a resident of one country earns income in the other, they pay tax in the source country and can then claim a credit for that tax paid against their tax liability in their country of residence.
DTAA Rates Between India and the USA
The DTAA rate between India and the USA varies depending on the specific type of income. To reduce the tax burden, the treaty specifies concessional tax rates for certain incomes, like dividends, interest, and royalties.
Below is a table outlining the tax rates for different income categories as per the DTAA between the USA and India.
Income Type | DTAA Tax Rate | Article Reference |
Dividends | 15% / 25% (based on shareholding percentage) | Article 10 |
Interest | 10% / 15% (based on the nature of the recipient) | Article 11 |
Royalties | 10% / 15% (depending on the nature of the royalty) | Article 12 |
Fees for Included Services | 10% / 15% (depending on the nature of the service) | Article 12 |
Capital Gains | Taxable in the country of residence (with exceptions) | Article 13 |
Independent Personal Services | Taxable in the country of residence (with exceptions) | Article 15 |
Important DTAA Articles to Know
The DTAA between India and the USA provides specific rules for different types of income and procedures.
DTAA Article 12: Royalties and Fees for Technical Services
Article 12 of the DTAA between India and the USA is significant as it deals with payments for intellectual property and technical expertise. It defines what constitutes a royalty or a fee for included services and sets the tax rate on such income, which is generally lower than standard domestic tax rates. The applicable TDS rate is typically capped at 10% or 15%.
Article 25 of the DTAA Between India and the USA: Elimination of Double Taxation
This article is the core of the treaty's purpose. Article 25 of the DTAA between India and the USA ensures taxpayers are not taxed twice on the same income. It allows a resident of India to claim a credit for the taxes paid in the USA against their Indian tax liability, and vice versa. This foreign tax credit mechanism is crucial for NRIs and U.S. residents to effectively manage their global tax obligations, using forms like the IRS Form 1116 in the U.S. and filing the relevant schedules in the Indian Income Tax Return.
What are the Documents required to claim DTAA TDS?
Certain documentation is necessary to prove your tax residency and eligibility and to benefit from the lower TDS rates under the DTAA between India and the USA.
- Tax Residency Certificate (TRC): This is the primary document issued by the country's tax authorities where you are a resident.
- Form 10F: A self-declaration form to be filed online by the non-resident taxpayer.
- PAN Card: A copy of the Permanent Account Number card is required in India.
- Self-Declaration: A declaration stating that you do not have a Permanent Establishment (PE) in India.
- No PE Declaration: A statement confirming the absence of a permanent business base in the source country.
How to Claim DTAA Benefits?
Claiming benefits under the double taxation avoidance agreement between India and the USA involves a few procedural steps in both countries. Here is a simple guide to the process.
In India (for Indian residents earning in the USA):
- Calculate your total income earned globally.
- Pay taxes in the USA on the income earned there per U.S. law.
- When filing your Indian Income Tax Return (ITR), declare your global income.
- Claim Foreign Tax Credit (FTC) for the taxes already paid in the USA by filling out Form 67.
- This credit will be adjusted against your total tax liability in India.
In the USA (for NRIs earning in India):
- TDS (Tax Deducted at Source) might be deducted in India at the DTAA rates on your income. To avail of this, you must provide your TRC and other documents to the payer in India. You can file an ITR in India to claim a refund if a higher tax is deducted. For certain transactions, you may need a Lower TDS certificate for NRIs.
- When filing your U.S. tax return, report your global income, including what you earned in India.
- Use IRS Form 1116 (Foreign Tax Credit) to claim a credit for the taxes paid in India.
- This helps reduce your overall tax liability in the United States.
DTAA TDS Rate Chart (2025) – India-USA
When a payment is made from India to a U.S. resident, Tax Deducted at Source (TDS) is applicable. The DTAA between India and the USA specifies that TDS rates are often lower than those in the Indian Income Tax Act.
Nature of Payment | TDS Rate as per the Income Tax Act | TDS Rate as per India-USA DTAA |
Interest | 20% (+ surcharge and cess) | 10% / 15% |
Royalties | 20% (+ surcharge and cess) | 10% / 15% |
Fees for Technical Services | 20% (+ surcharge and cess) | 10% / 15% |
Other Income | 30% (+ surcharge and cess) | As per the respective article |
Form 15CA/15CB requirement for remittance from India
When remitting money from India to a non-resident, like an NRI in the USA, Forms 15CA and 15CB are crucial. These forms serve as a declaration and certification process for payments made abroad.
- Form 15CB: A certificate issued by a Chartered Accountant to verify that the payment complies with tax laws and the DTAA.
- Form 15CA: A declaration filed by the person making the remittance, based on the certificate from the CA.
- These forms are mandatory for payments exceeding a specific limit to ensure proper tax compliance.
DTAA Impact on NRIs and Investors
- Reduces Tax Burden: The primary benefit is the reduction of the overall tax liability by preventing double taxation.
- Lower TDS Rates: NRIs benefit from lower TDS on incomes such as interest from their NRO accounts, dividends, and royalties, which improves cash flow.
- Certainty and Clarity: The treaty provides clear rules on which country has the right to tax specific types of income, reducing ambiguity for taxpayers. This is especially helpful for NRIs looking into property investment in India.
- Promotes Investment: The DTAA makes cross-border investments more attractive and financially viable by ensuring a fair tax regime.
How NoBroker Can Help with NRI Services?
Navigating the complexities of international tax treaties and property management from abroad can be challenging. NoBroker offers dedicated exclusive services for NRI property owners to simplify this journey. From conducting legal due diligence for property investment to assisting with paperwork, our experts are here to help. We ensure a seamless experience, whether you are dealing with TDS on property sales or managing your investments, allowing you to handle your affairs in India with confidence and ease from anywhere in the world.
Know More How DTAA Works in India with Different Countries:
Frequently Asked Questions
Ans: According to Article 12 of the India-USA DTAA, the tax rate for royalties and fees for included services is capped at 10% or 15%, depending on the nature of the service or royalty, which is often more favourable than the standard domestic rate.
Ans: NRIs can claim DTAA benefits in India by providing a Tax Residency Certificate (TRC) from the USA and a self-declaration in Form 10F to the entity making the payment in India. This ensures that tax is deducted at the lower DTAA rates.
Ans: Article 12 of the DTAA between India and the USA governs the taxation of 'Royalties' and 'Fees for Included Services'. It defines these terms and sets the maximum tax rate that the source country (where the income arises) can charge on such payments to a resident of the other country.
Ans: The India-USA DTAA does not directly reduce the tax withheld by the U.S. on dividends paid to an Indian resident, as the U.S. applies its domestic laws. However, an Indian resident can claim a foreign tax credit in India for the taxes paid in the U.S. on that dividend income, as per Article 25, which effectively reduces their overall tax burden.
Ans: Article 25 provides the mechanism for eliminating double taxation through a foreign tax credit. It allows a resident of one country (e.g., India) to claim a credit for the income taxes they have paid in the other country (e.g., the USA) against their tax liability in their home country. This ensures that the same income is not taxed twice.
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