Without a treaty, India taxes non-resident income at flat domestic rates — 20% on dividends and interest, 10% on royalties and fees for technical services — and your home country then taxes the same income again as part of your worldwide income. The India-US DTAA, in force since 1991, exists specifically to stop that double hit. Here's what it actually caps, and the paperwork that determines whether you get the lower rate or not.
The rates that matter
| Income type | India-US DTAA rate | Notes |
|---|---|---|
| Dividends | 15% (10%+ voting stock) / 25% (below 10%) | If your holding is under 10%, India's domestic rate (~20.8%) is often lower — you can choose whichever is more beneficial |
| Interest | 15% general, 10% for banks/financial institutions, 0% on government loans | Applies to cross-border lending arrangements |
| Royalties | 10% equipment, 15% intellectual property | Equipment royalties get materially better treatment than IP licensing under this treaty |
| Fees for Included Services (FIS) | 10–15% | Narrower than the "fees for technical services" concept in some other Indian treaties |
One detail that saves real money for anyone paying for US SaaS: subscriptions to platforms like Salesforce, Microsoft 365 or similar are generally not royalties and not FIS under current Indian case law (the Engineering Analysis Supreme Court ruling), which means they attract zero Indian withholding tax — though 18% GST under reverse charge still applies separately.
The documentation that actually unlocks these rates
None of these lower rates apply automatically. Without the right paperwork, the Indian payer withholds at the full domestic rate, and you claim the difference back later — which is a real cash-flow cost even if you eventually recover it. You need three things in place before the payment, not after:
Tax Residency Certificate (TRC)
US residents obtain this as IRS Form 6166, by filing Form 8802 — request it at least 45 days before you need it, because the IRS processing time is the usual bottleneck.
Form 41 (replaces Form 10F from 1 April 2026)
Filed electronically on India's e-filing portal under the Income Tax Act 2025 and Income Tax Rules 2026. No PAN or Aadhaar required for a non-resident company — a change worth knowing if your last DTAA filing predates this update.
No Permanent Establishment declaration
A signed statement that you don't have a taxable presence (PE) in India, where applicable to the income type.
The Permanent Establishment trap
A US company creates a PE in India — and becomes taxable there at roughly 43.7% including surcharge and cess — if it has a fixed place of business in India, if services rendered in India exceed 90 days in any 12-month period (a "Service PE"), or if someone in India habitually concludes contracts on its behalf ("Agency PE"). The practical guardrails: keep any on-the-ground service delivery under 90 days in a rolling 12 months, use independent contractors rather than dependent agents where possible, and don't let a "temporary" India presence quietly become a fixed place of business.
Common mistakes that cost founders the treaty rate
- Withholding at 20% instead of 15% because the TRC wasn't obtained in time — recoverable, but a cash-flow cost that didn't need to happen.
- Treating routine services as FIS by default, when the domestic rate (10%) is sometimes lower than the treaty FIS rate (15%) — check both and use whichever is actually lower.
- Forgetting Form 41 for the US recipient — without it, the payer has no basis to apply the treaty rate at all.
- Skipping Form 15CA/15CB — the bank won't process the remittance without these, regardless of whether your DTAA paperwork is otherwise perfect.
US withholding tax paid on Indian-source income is generally creditable against US federal tax under IRC §901/904, so the treaty protects you in both directions — but only if the documentation trail is complete on both ends. For the full picture on setting up the US side of a cross-border structure, see our US company registration guide.