The India-US tax treaty (DTAA) can reduce Withholding Tax on payments such as dividends, interest and royalties to your US parent, if the parent holds a US Tax Residency Certificate and files the required declaration (Form 41, previously Form 10F). Separately, a US company can be taxed in India if it has a permanent establishment there, for example through staff who conclude contracts for it.
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Key facts
| Treaty | Convention between India and the United States for the avoidance of double taxation |
|---|---|
| Benefit claimed with | US Tax Residency Certificate (Form 6166 from the IRS), Form 41 (previously Form 10F), and a no-PE declaration where asked |
| Withholding Tax on non-resident payments | Section 393 of the Income-tax Act, 2025 (previously Section 195) |
| Rate applied | The lower of the domestic rate and the treaty rate, where the conditions are met |
| Treaty rates | Dividends 15% (25% where the holding is under 10%); interest 10% (bank) or 15%; royalties and fees for included services 15% (10% for equipment) |
| PE risk arises from | Fixed place, dependent agents, service presence and certain project work |
| Who bears the risk | The US parent, not the Indian subsidiary |
How the treaty helps
Without a treaty, India taxes certain payments to non-residents at domestic rates. The treaty may cap those rates for payments such as dividends, interest and royalties or fees for technical services. The rate that applies depends on the type of payment and the conditions in the treaty and the current law, so we confirm it before each payment.
The Indian payer deducts Withholding Tax under Section 393 (previously Section 195) at the applicable rate and deposits it with the government. The US parent can then claim a foreign tax credit in the US, subject to US rules.
Documents to claim treaty benefits
- Tax Residency Certificate: issued by the IRS (Form 6166) to show the US company is a US tax resident.
- Form 41 (previously Form 10F): a statement the non-resident files with the Indian payer or electronically, giving residency details.
- Declaration of no permanent establishment in India, where the payer or the tax officer asks for it.
- Beneficial ownership evidence: the recipient should be the real owner of the income and not a conduit.
Keep these ready before the first payment. Missing documents are the usual reason the higher domestic rate is applied.
Permanent establishment: when a US company becomes taxable in India
| Type | What triggers it |
|---|---|
| Fixed place PE | An office, branch, factory or other fixed place of business in India through which the parent carries on business |
| Dependent agent PE | A person in India who habitually concludes contracts or plays the main role in concluding them for the parent |
| Service PE | Services performed in India by the parent's own personnel for more than 90 days within any 12-month period (Article 5) |
| Project PE | A building, construction, installation or assembly project continuing for more than 120 days within any 12-month period (Article 5) |
A subsidiary is not by itself a permanent establishment of its parent. The risk arises when the subsidiary or its staff act in a way that makes them the parent's agent, or when the parent's own employees work from India.
How to reduce PE risk
- Keep the subsidiary's role clear in the intercompany agreement. Decisions to conclude customer contracts should sit with the parent's authorized officers.
- Track the days that US employees spend in India and what they do there.
- Avoid giving Indian staff authority to negotiate and sign contracts for the parent.
- Review any arrangement with an Employer of Record. See EOR vs subsidiary.
- Document the real economic substance of the subsidiary.
What this means for a US parent
- The treaty and a foreign tax credit work together: Withholding Tax paid in India is usually creditable against US tax, subject to US rules. Your US adviser should review this.
- Request the IRS Form 6166 early. Processing can take weeks and it is usually issued for a calendar year.
Mistakes to avoid
- Paying the parent before the Tax Residency Certificate and Form 41 are on file.
- Assuming the treaty rate applies automatically.
- Letting US executives work from India for long periods without a PE review.
- Giving Indian managers signing authority for the parent's customer contracts.
How AU Corporate handles this
We confirm the right Withholding Tax rate before each payment, collect treaty documents and review permanent establishment exposure.
Related services: Taxation and regulatory services
Official sources
Rules on this page can be verified at the primary sources: Ministry of Corporate Affairs, Reserve Bank of India, Income Tax Department and the GST portal.
Frequently asked questions
What is a DTAA?
A double taxation avoidance agreement. It allocates taxing rights between two countries and can reduce Withholding Tax on cross-border payments.
What does the parent need to claim treaty rates?
A US Tax Residency Certificate, Form 41 (previously Form 10F) and, where asked, a declaration of no permanent establishment in India.
Is an Indian subsidiary a permanent establishment of the US parent?
An Indian subsidiary is not a permanent establishment of the US parent by itself. The risk arises if the subsidiary acts as the parent's dependent agent, or if the parent's own staff operate from India.
Which section governs Withholding Tax on payments to a non-resident?
Section 393 of the Income-tax Act, 2025 (previously Section 195 of the 1961 Act).
Can the Indian tax be credited in the US?
Indian tax can usually be credited in the US as a foreign tax credit under US rules. This should be confirmed with a US tax adviser.
What is the India-US tax treaty (DTAA)?
The India-US tax treaty (DTAA) is an agreement that avoids double taxation between the two countries. It reduces withholding rates on dividends, interest, royalties and fees for included services (Articles 10 to 12) and defines when a permanent establishment exists (Article 5). Claiming its benefits needs a Tax Residency Certificate and treaty details in Form 41 (previously Form 10F).
What is a Tax Residency Certificate and Form 41?
A Tax Residency Certificate shows that the US parent is a US tax resident, and the IRS issues it. Form 41 (previously Form 10F) is the electronic statement of details that the foreign payee gives to claim treaty benefits. Both should be ready before the first payment.
Does the treaty reduce Withholding Tax?
The India-US tax treaty can reduce Withholding Tax if the parent is a US tax resident and satisfies the conditions, which requires a Tax Residency Certificate and treaty details in Form 41 (previously Form 10F).
What is permanent establishment risk?
A permanent establishment (PE) is a taxable presence of a foreign company in India. It can arise from a fixed place of business, dependent agents who conclude contracts, or staff providing services in India for long enough. A PE exposes the US parent's profits to Indian tax.
What Withholding Tax rate applies to payments to the US parent?
Withholding Tax on payments from an Indian subsidiary to its US parent is 15% on dividends under the India-US treaty where the parent holds at least 10% of the voting power (25% otherwise), 10% on interest paid to banks and 15% on other interest, and 15% on royalties and fees for included services (10% for equipment royalties). The domestic rate for non-residents is 20% plus surcharge and cess, and the lower rate applies where the treaty conditions are met (Section 393 of the Income-tax Act, 2025, previously Section 195 of the Income-tax Act, 1961).
What are Withholding Tax returns and when are they due?
Withholding Tax deducted on salaries and payments is deposited by the 7th of the following month. Quarterly statements are filed in Form 138 for salaries, Form 140 for resident payments and Form 144 for non-resident payments (previously Forms 24Q, 26Q and 27Q).
How many days of work in India create a permanent establishment under the India-US treaty?
Under Article 5 of the India-US treaty, services furnished in India through employees or other personnel create a permanent establishment if the activities continue for more than 90 days within any 12-month period. A building, construction, installation or assembly project creates one after more than 120 days within any 12-month period.
What are the India-US treaty withholding rates?
The India-US treaty caps Indian withholding at 15% on dividends where the US company holds at least 10% of the voting power (25% otherwise), 10% on interest paid to banks and 15% on other interest, and 15% on royalties and fees for included services (10% for equipment royalties). The treaty rate applies only with a US Tax Residency Certificate and Form 41 (previously Form 10F).
Related guides
Repatriating Profits to the US: Dividends, Fees, Royalties, Loans and the Paperwork
How a US 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 US Parents and Their Indian Subsidiaries
How transfer pricing works for an Indian subsidiary of a US company: arm's length pricing, documentation, Form 48, methods, safe harbour and audits.
Read the guide →US Parent Obligations When You Own an Indian Subsidiary
US reporting that follows when you own an Indian subsidiary: Form 5471, FBAR, Form 8938 and international tax regimes. A guide for US finance teams.
Read the guide →Tax Notices and Disputes in India: What US Companies Should Do
What to do on receiving an Indian income tax, GST or transfer pricing notice: first steps, appeal routes, DRP, ITAT, MAP and Advance Pricing Agreements.
Read the guide →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.