Under the India-Japan treaty, Indian Withholding Tax on payments to a Japanese resident is capped at 10% on dividends, interest, royalties and fees for technical services. The domestic Indian rate on these payments is generally 20% before surcharge and cess, so the treaty rate is usually lower. The cap applies only if you hold the right documents and meet the conditions of each article.
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Key facts
| Dividends | 10% (Article 10) |
|---|---|
| Interest | 10% (Article 11); some interest owed to the Japanese government and certain public financial bodies is exempt in India |
| Royalties and fees for technical services | 10% (Article 12) |
| Capital gains | No treaty cap; gains on shares of an Indian company are taxable in India (Article 13) |
| Indian section for deduction | Section 393 of the Income-tax Act, 2025 (previously Section 195) |
| Condition | Japanese certificate of residence, Form 41 (previously Form 10F) and beneficial ownership |
Treaty rate cap by type of payment
| Payment | Treaty cap | Indian domestic rate | Note |
|---|---|---|---|
| Dividend from the Indian subsidiary to the Japanese parent | 10% | 20% | Article 10; no minimum holding is needed for the 10% rate |
| Interest on a loan from the Japanese parent or a bank | 10% | 20%; 5% on qualifying external commercial borrowings | Article 11; exemptions for certain Japanese government and public financial bodies |
| Royalty | 10% | 20% | Article 12 |
| Fees for technical services | 10% | 20% | Article 12; the treaty defines the services covered |
| Capital gains | No treaty cap | Domestic rules | Article 13 |
Dividends to a Japanese parent
India taxes dividends in the shareholder's hands, so a dividend to a non-resident carries Withholding Tax at the payment. The treaty rate for Japan is 10%, against a domestic rate of generally 20%. On the Japanese side, a qualifying holding generally gets a 95% dividend exemption, which can mean the Indian tax on the exempt portion is not creditable. Your Japanese tax adviser should model this before you choose between dividends, fees and loan repayments.
Interest on loans from the Japanese parent
Interest on a loan from the Japanese parent to the Indian subsidiary is subject to Withholding Tax and to the Reserve Bank of India's external commercial borrowing rules. Some categories of foreign-currency borrowing carry a lower domestic rate, so compare the two. Interest must also be at arm's length. See transfer pricing.
Royalties and fees for technical services
A single 10% cap covers royalties and fees for technical services. Which payments count as royalties or technical fees depends on the treaty's definitions and on the contract, so classify each payment before the remittance. A payment outside the definitions may be business profits, which India can tax only if the Japanese company has a permanent establishment there.
Before each remittance
- Classify the payment under the contract and the treaty.
- Check that the Japanese certificate of residence and Form 41 are current.
- Confirm the treaty rate against the domestic rate for the tax year.
- Deduct Withholding Tax at the right rate and deposit it with the government.
- File Form 145 (previously Form 15CA) and, where required, a Chartered Accountant's Form 146 (previously Form 15CB). See repatriating profits.
- Give the Japanese parent the Withholding Tax certificate for its tax return.
What this means for a Japanese parent
- The dividend exemption in Japan changes the value of the Indian tax credit. Plan the mix of dividends, service fees and royalties with both countries in view.
- Rates in older articles may be out of date. Always confirm with the current treaty text and Indian law.
Mistakes to avoid
- Using the treaty rate without the certificate of residence.
- Classifying a service fee as business profits (or the reverse) without reading the contract.
- Ignoring surcharge and cess when estimating the net cost.
- Paying interest above arm's length or outside external commercial borrowing rules.
How AU Corporate handles this
We classify each payment, confirm the treaty rate, deduct and deposit Withholding Tax and prepare the remittance forms.
Related services: Taxation and regulatory services
Official sources
Rates can be verified at the primary sources: the Income Tax Department and its treaty page, and Japan's National Tax Agency.
Frequently asked questions
What is the Withholding Tax rate on dividends from India to a Japanese parent?
Under the India-Japan treaty, 10%, subject to documents and the domestic rate. The domestic rate is generally 20%.
What is the treaty rate on interest?
10%. Interest owed to certain Japanese government and public financial bodies can be exempt in India.
What is the treaty rate on royalties and fees for technical services?
10% for both, as defined in Article 12 of the treaty.
Is the treaty rate a cap or a fixed rate?
A cap. The rate applied is the lower of the treaty and domestic rate.
Does the Japanese parent need to hold a minimum percentage for the dividend rate?
No minimum holding is needed for the 10% dividend rate under the treaty. Japan's own 95% exemption has a 25% holding and six-month test.
Do surcharge and cess apply on top of the treaty rate?
This has been litigated. Confirm the position for the tax year before remitting.
Which Indian section governs the deduction?
Section 393 of the Income-tax Act, 2025 (previously Section 195 of the 1961 Act).
Which forms accompany the remittance?
Form 145 (previously Form 15CA) and, where required, a Chartered Accountant's Form 146 (previously Form 15CB).
Are capital gains covered by the rate caps?
No. The treaty has no rate cap for capital gains, and gains on shares of an Indian company are taxable in India.
Related guides
How to Claim India-Japan Treaty Benefits: Certificate of Residence, Form 41 and Beneficial Ownership
Documents a Japanese company needs to claim India-Japan treaty rates: certificate of residence, Form 41 (previously Form 10F) and no-PE declaration.
Read the guide →Repatriating Profits to Japan: Dividends, Fees, Royalties, Loans and the Paperwork
How a Japanese parent receives money from its Indian subsidiary: dividends, service fees, royalties, loans. Forms 145 and 146, Withholding Tax and DTAA relief.
Read the guide →Transfer Pricing in India: A Guide for Japanese Parents and Their Indian Subsidiaries
How transfer pricing works for an Indian subsidiary of a Japanese company: arm's length pricing, documentation, Form 48, methods, safe harbour and audits.
Read the guide →The India-Japan Tax Treaty and Permanent Establishment Risk for Japanese Companies
How the India-Japan tax treaty applies to payments to your Japanese parent: 10% Withholding Tax rates, residence certificate, Form 41 and permanent establishment risk.
Read the guide →Sources
Last updated 20 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.