Quick Answer
India’s Double Taxation Avoidance Agreements (DTAAs) under Section 90 of the Income Tax Act, 1961 form a treaty network spanning over 95 countries, providing reduced withholding tax rates, Permanent Establishment (PE) protection, and dispute resolution mechanisms for cross-border transactions. The Multilateral Instrument (MLI), ratified by India in 2019 under the OECD BEPS framework, has overlaid anti-abuse provisions including the Principal Purpose Test (PPT) on most of India’s DTAAs. At Virtual Auditor, we provide comprehensive international taxation advisory covering DTAA application, PE risk assessment, transfer pricing, Section 195 TDS compliance, Form 15CA/15CB certification, and treaty-based dispute resolution through Mutual Agreement Procedure (MAP).
Definition — Double Taxation Avoidance Agreement (DTAA): A bilateral treaty entered into between India and another country under Section 90 of the Income Tax Act, 1961, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The DTAA allocates taxing rights between the source country and the residence country, provides reduced withholding tax rates, and establishes mechanisms for exchange of information and mutual agreement.
Definition — Section 90 (Agreement with foreign countries or specified territories): Empowers the Central Government to enter into DTAAs with other countries for granting relief from double taxation, for avoidance of double taxation, for exchange of information, and for recovery of income tax. Section 90(2) provides that the provisions of the Act or the DTAA, whichever are more beneficial to the assessee, shall apply.
Definition — Section 91 (Countries with which no DTAA exists): Provides unilateral relief to Indian residents who have paid tax in a country with which India does not have a DTAA. The relief is computed as the lower of (a) Indian tax on the doubly-taxed income, or (b) the foreign tax paid on such income.
Definition — Multilateral Instrument (MLI): The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, developed by the OECD/G20 Inclusive Framework, which modifies existing bilateral DTAAs without requiring bilateral renegotiation. India signed the MLI on 7 June 2017 and deposited its ratification on 25 June 2019. The MLI entered into force for India on 1 October 2019.
India has one of the most extensive DTAA networks among developing countries, with comprehensive agreements covering over 95 jurisdictions. India’s DTAAs broadly follow the UN Model Tax Convention (which preserves greater source-country taxing rights) rather than the OECD Model (which favours residence-country taxation), reflecting India’s position as primarily a capital-importing country.
India’s treaty network includes DTAAs with all major trading and investment partners:
The following table summarises the withholding tax rates under India’s most commonly invoked DTAAs (rates are on gross payments unless otherwise stated). These rates must be read subject to MLI modifications where applicable:
| Country | Dividends | Interest | Royalties | FTS |
|---|---|---|---|---|
| USA | 15%/25% | 15% | 15% | 15% |
| UK | 15%/20% | 15% | 15% | 15% |
| Singapore | 10%/15% | 15% | 10% | 10% |
| Mauritius | 5%/15% | 7.5% | 15% | N/A (no FTS article) |
| Netherlands | 10% | 10% | 10% | 10% |
| Germany | 10% | 10% | 10% | 10% |
| Japan | 10% | 10% | 10% | 10% |
| UAE | 10% | 12.5% | 10% | 10% |
| Canada | 15%/25% | 15% | 10%/15% | 10%/15% |
| Australia | 15% | 15% | 10% | 10% |
Note: These are indicative rates. Actual rates depend on the specific article, conditions (e.g., beneficial ownership, shareholding thresholds for reduced dividend rates), and MLI modifications. Always verify the current treaty text and MLI position before application.
Section 90(2) of the Income Tax Act provides the foundational rule for DTAA application:
“Where the Central Government has entered into an agreement with the Government of any country outside India… for granting relief of tax, or for avoidance of double taxation… then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”
This means the taxpayer can choose to be governed by either the provisions of the Income Tax Act or the DTAA, whichever is more beneficial. The comparison is done provision-by-provision (article-by-article), not as a whole. For example, a non-resident can claim the DTAA rate for royalties (if lower than the domestic rate) while being governed by the domestic law for capital gains (if the DTAA provides for source-country taxation at a higher rate).
To claim DTAA benefits, the non-resident must satisfy two documentary requirements:
Consequence of non-compliance: Without a valid TRC, the non-resident cannot claim DTAA benefits. The Supreme Court in Azadi Bachao Andolan v. Union of India (2003) 263 ITR 706 upheld the validity of TRCs as sufficient evidence of residence, though this position has been modified for substance requirements post-MLI and GAAR.
Section 91 provides relief to an Indian resident who has earned income in a country with which India does not have a DTAA, and that income has been taxed in both India and the foreign country. The relief is computed as follows:
Relief = Lower of:
The relief is available only if:
| Parameter | Section 90 (DTAA Relief) | Section 91 (Unilateral Relief) |
|---|---|---|
| Applicability | Countries with which India has a DTAA | Countries with which India has no DTAA |
| Available to | Both residents and non-residents | Indian residents only |
| Type of relief | Exemption method or credit method (as per treaty) | Credit method only (lower of Indian or foreign tax) |
| Rate benefit | May provide reduced withholding rates in the source country | No rate benefit — relief is only against Indian tax |
| Documentary requirement | TRC + Form 10F | Proof of foreign tax payment |
The concept of Permanent Establishment is central to international taxation. A foreign enterprise is taxable in India on its business profits only if it carries on business through a PE in India. Most India DTAAs define PE to include:
The MLI has introduced significant modifications to PE rules for India’s Covered Tax Agreements (CTAs):
Expert Insight — CA V. Viswanathan, FCA, ACS, CFE (IBBI/RV/03/2019/12333)
PE risk is the single biggest international tax concern for multinational enterprises operating in India. The Indian tax authorities are aggressive in asserting PE, particularly Service PE and Dependent Agent PE. At Virtual Auditor, we conduct detailed PE risk assessments for foreign enterprises by analysing: (1) the nature and duration of employee deputation to India, (2) the decision-making authority of Indian personnel, (3) the characterisation of the Indian entity’s role in the MNE group’s value chain, and (4) the applicability of MLI modifications to the specific DTAA. Our PE risk assessment reports are used by global tax teams to structure India operations, draft inter-company agreements, and defend PE assertions during assessment. Pricing starts from Rs.50,000. Contact us at Virtual Auditor.
Treaty shopping refers to the practice where a resident of a third country (Country C) routes investments into India through an entity in a treaty country (Country T) to avail of the beneficial DTAA rates between India and Country T. The India-Mauritius DTAA was the most prominent example — investments from various countries were routed through Mauritian entities to claim capital gains exemption under the India-Mauritius DTAA.
The Supreme Court in Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 upheld treaty shopping through Mauritius, holding that a TRC issued by the Mauritius authorities was sufficient evidence of residence and that India could not go behind the TRC to question the substance of the entity. This was a watershed decision that legitimised the Mauritius route for nearly two decades.
The 2016 Protocol amending the India-Mauritius DTAA fundamentally changed the capital gains taxation framework:
The India-Singapore DTAA was also amended in 2017 (Third Protocol, effective 01-04-2017) to align with the Mauritius amendment. Capital gains on shares acquired on or after 1 April 2017 are taxable in India at domestic rates. The LOB clause under Article 24A of the India-Singapore DTAA requires the Singapore entity to satisfy a “shell/conduit company” test and have an annual expenditure of at least S$200,000 in the preceding 24 months.
GAAR, introduced effective from AY 2018-19, provides the Indian tax authorities with a powerful tool to deny treaty benefits where an arrangement’s main purpose (or one of the main purposes) is to obtain a tax benefit. Key features:
The MLI’s Article 7 introduces the Principal Purpose Test as a minimum standard for all Covered Tax Agreements. The PPT provides that a DTAA benefit shall not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. India has adopted the PPT (Article 7(1)) as a standalone anti-abuse rule without the simplified LOB (Article 7(4)).
The PPT has a lower threshold than GAAR — it requires only that obtaining the treaty benefit was “one of the principal purposes” (not the “main purpose” as in GAAR). This means the PPT can be invoked even where GAAR may not apply due to its higher threshold.
The taxation of royalties and FTS is one of the most litigated areas in India’s international tax jurisprudence. Key issues:
Following the Vodafone International Holdings BV v. Union of India (2012) 341 ITR 1 (SC) decision (which held that India could not tax offshore transfers of shares), the Finance Act 2012 introduced Explanation 5 to Section 9(1)(i), deeming capital gains on transfer of shares of a foreign company to be taxable in India if such shares derive their value substantially from assets located in India. “Substantially” is defined as more than 50% of the value of assets of the foreign company being situated in India.
This indirect transfer provision overrides DTAA protections to the extent that the DTAA does not specifically cover indirect transfers. Many India DTAAs (including India-Mauritius post-2016 and India-Singapore post-2017) now include provisions permitting India to tax indirect transfers.
Several India DTAAs contain a Most Favoured Nation (MFN) clause in the Protocol, providing that if India enters into a DTAA with a third country (being an OECD member) with a lower rate of tax on dividends, interest, royalties, or FTS, the lower rate shall automatically apply to the DTAA containing the MFN clause. DTAAs with MFN clauses include those with France, Netherlands, Sweden, Spain, Hungary, Belgium, and Switzerland (for specific articles).
The Supreme Court in Assessing Officer (International Taxation) v. Nestle SA (2023) SLP (Civil) No. 17756/2021 held that:
This decision reversed the position taken by several Tribunals and the Delhi High Court, which had held the MFN clause to be self-executing. Post-Nestle SA, the practical impact is that the MFN clause in India DTAAs is largely ineffective until the Central Government issues specific notifications — which, as of March 2026, have not been issued for most MFN treaties.
Expert Insight — CA V. Viswanathan
The Nestle SA decision has significantly altered the international tax landscape for European MNEs with Indian operations. At Virtual Auditor, we advise clients to: (1) Review all historical TDS positions where MFN rates were applied to assess potential exposure. (2) For fresh remittances, apply the original treaty rate (not the MFN-reduced rate) to avoid TDS default proceedings under Section 201. (3) For pending assessments where MFN was claimed, prepare alternative arguments under the specific DTAA provisions. Our international taxation advisory integrates treaty analysis with transfer pricing and FEMA compliance to provide holistic cross-border structuring. Call +91 99622 60333 for a consultation.
Section 195 mandates that any person responsible for paying to a non-resident any sum chargeable to tax under the Act shall deduct TDS at the rates in force. Key aspects:
The Mutual Agreement Procedure allows competent authorities of two treaty countries to resolve disputes arising from taxation not in accordance with the DTAA. MAP can be invoked for:
India’s Competent Authority for MAP is the Joint Secretary (FT&TR-I), CBDT. MAP applications must be filed within the time limit specified in the DTAA (typically 3 years from the first notification of the action giving rise to taxation not in accordance with the DTAA). India has entered into MAP arrangements with several countries and resolved hundreds of cases, particularly in the transfer pricing domain.
An APA is a prospective agreement between the taxpayer and the CBDT (or between the taxpayer, CBDT, and a foreign competent authority for bilateral/multilateral APAs) determining the transfer pricing methodology for international transactions for a maximum period of 5 years (with rollback for 4 preceding years). APAs provide certainty, reduce litigation, and prevent double taxation. India’s APA programme, administered by the CBDT’s APA Directorate, has signed over 500 APAs since its inception in 2012.
India has been an active participant in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Key BEPS actions adopted by India:
The OECD/G20 Inclusive Framework’s Pillar Two establishes a global minimum effective tax rate of 15% for MNE groups with consolidated revenues exceeding EUR 750 million. India has not yet enacted domestic legislation implementing Pillar Two (GloBE Rules — Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR), or Qualified Domestic Minimum Top-up Tax (QDMTT)). However, several jurisdictions that are key investment routes for India (notably the EU, UK, Japan, South Korea, and Australia) have enacted or are in the process of enacting Pillar Two rules, which will impact Indian MNE groups and subsidiaries of foreign MNEs in India.
Where an Indian resident has paid tax in a foreign country (whether under a DTAA or in a non-treaty country), the credit for such foreign tax is governed by Rule 128 of the Income Tax Rules, 1962:
Summary: International Tax Compliance Checklist
| Service | Scope | Pricing (INR) |
|---|---|---|
| DTAA treaty analysis and advisory | Treaty application, rate determination, MLI impact assessment | From Rs.25,000 |
| PE risk assessment | Fixed place PE, service PE, agent PE analysis with MLI overlay | From Rs.50,000 |
| Section 195 TDS advisory | Payment characterisation, DTAA rate determination, Section 195(2) application | From Rs.15,000 per transaction |
| Form 15CA/15CB certification | CA certificate for remittance to non-residents | From Rs.5,000 per certificate |
| Transfer pricing documentation | Master File, Local File, CbCR, Form 3CEB | From Rs.75,000 |
| MAP application support | Application drafting, representation before Competent Authority | From Rs.2,00,000 |
| International tax structuring | Inbound/outbound investment structuring, holding company analysis | From Rs.1,00,000 |
| GAAR/PPT risk assessment | Anti-abuse provision analysis for existing and proposed structures | From Rs.50,000 |
For a detailed engagement proposal, visit Virtual Auditor pricing or call +91 99622 60333.
A DTAA is a bilateral treaty under Section 90 of the Income Tax Act between India and another country that prevents the same income from being taxed in both countries. DTAAs provide: reduced withholding tax rates on dividends, interest, royalties, and FTS; protection from source-country taxation of business profits if no PE exists; mechanisms for resolving disputes through MAP; and exchange of information between tax authorities. Under Section 90(2), the taxpayer can apply either the domestic law or the DTAA, whichever is more beneficial.
India has comprehensive DTAAs with over 95 countries, covering all major trading and investment partners across the Americas, Europe, Asia-Pacific, Middle East, and Africa. Key treaties include those with USA, UK, Singapore, Mauritius, Netherlands, UAE, Germany, Japan, France, Canada, and Australia. India also has limited agreements (covering airline/shipping profits or information exchange) with additional jurisdictions.
The MLI is a multilateral convention under the OECD BEPS project that modifies existing bilateral DTAAs without requiring bilateral renegotiation. India signed the MLI on 7 June 2017 and ratified it on 25 June 2019. India has listed 93 DTAAs as Covered Tax Agreements. The MLI introduces the Principal Purpose Test (PPT) to counter treaty shopping, expands the PE definition to address commissionnaire arrangements and contract splitting, and modifies the specific activity exemptions for PE. Each DTAA must be read with its MLI modifications.
A TRC is mandatory under Section 90(4) for any non-resident claiming DTAA benefits in India. It must be issued by the tax authority of the country of residence and contain prescribed particulars (name, status, nationality, TIN, residential status, period, and address). In addition, the non-resident must file Form 10F on the e-filing portal. Without a valid TRC and Form 10F, DTAA benefits cannot be claimed and the domestic law withholding rates apply.
Certain India DTAAs (France, Netherlands, Sweden, Spain, Hungary, Belgium, Switzerland) contain an MFN clause providing that if India signs a DTAA with a third OECD member country at a lower rate, the lower rate automatically applies. However, the Supreme Court in Nestle SA (2023) held that the MFN clause is not self-executing — it requires a separate notification under Section 90(1) by the Central Government. Until such notification is issued, the original treaty rate (not the MFN-reduced rate) applies.
Section 90 provides double taxation relief through bilateral DTAAs — available to both residents and non-residents, with the “more beneficial” rule allowing the taxpayer to choose between domestic law and DTAA. Section 91 provides unilateral relief only to Indian residents who earn income in countries with which India has no DTAA — relief is limited to the lower of the Indian tax or the foreign tax on the doubly-taxed income. Section 91 relief requires proof that tax has been actually paid in the foreign country.
At Virtual Auditor, DTAA treaty analysis starts from Rs.25,000. PE risk assessment from Rs.50,000. Section 195 TDS advisory from Rs.15,000 per transaction. Form 15CA/15CB certification from Rs.5,000. Transfer pricing documentation from Rs.75,000. MAP application support from Rs.2,00,000. International tax structuring from Rs.1,00,000. Contact CA V. Viswanathan at +91 99622 60333 for a customised engagement proposal.
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