The India-US tax treaty (DTAA) divides taxing rights between the two countries so that income is not taxed twice. It applies to residents of either country, covers income taxes only, and lets you use the treaty or domestic law, whichever is more beneficial. Relief comes through lower Withholding Tax at source, exemptions for some income, and a foreign tax credit in the country of residence.
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Key facts
| Instrument | Convention between India and the United States for the avoidance of double taxation and the prevention of fiscal evasion |
|---|---|
| Who qualifies | A person who is a resident of India or the US under the treaty, including companies |
| Taxes covered | Income taxes. Social security taxes are excluded (Article 2) |
| Indian law | Section 159 of the Income-tax Act, 2025 (previously Sections 90 and 90A): treaty applies to the extent more beneficial |
| Proof of residence | A Tax Residency Certificate, plus Form 41 (previously Form 10F) where required |
| Dispute route | Mutual agreement procedure between the two tax authorities |
What a tax treaty does
Without a treaty, India taxes income arising in India, and the US taxes its citizens, residents and companies on worldwide income. The same dollar can be taxed twice. The treaty allocates which country may tax which kind of income, caps the tax a source country can charge on certain payments, and gives the country of residence the job of relieving what remains.
The treaty works alongside domestic law. Under Section 159 of the Income-tax Act, 2025 (previously Sections 90 and 90A of the 1961 Act), the Indian Act applies only to the extent it is more beneficial to the taxpayer than the treaty. A non-resident must hold a residency certificate and provide the documents the rules prescribe to claim relief.
Who and what the treaty covers
| Item | Position |
|---|---|
| Persons | Residents of India or the US, as defined in Article 4 (residence) |
| Taxes | Federal income tax in the US; income tax and surcharge in India. Social security taxes are excluded |
| Business profits | Taxable in the source country only if there is a permanent establishment there. See PE risk |
| Dividends, interest, royalties, fees | Taxable in both countries, with a cap on the source country's rate. See withholding rates |
| Capital gains | Generally taxed under domestic law, with specific treaty rules for certain assets |
| Employment income | Rules for salaried individuals. See tax residency for expats |
| Relief | Foreign tax credit in the country of residence (Article 25) |
The US saving clause
The US treaty practice includes a saving clause that lets the US tax its own citizens and residents as if the treaty did not exist, with specific exceptions. This is why a US citizen working in India still files in the US and relies on the foreign tax credit or exclusions rather than treaty exemption. Your US adviser should confirm how it applies to each person.
Treaty residence for companies and individuals
- A company is usually a resident where it is incorporated or managed, as the treaty defines. A US parent incorporated in the US is a US resident.
- An individual who is a resident of both countries under domestic law is resolved by the tie-breaker in Article 4: permanent home, then centre of vital interests, then habitual abode, then nationality, and finally agreement between the tax authorities.
- Treaty residence is proved with a certificate from the home tax authority. For the US this is Form 6166 issued by the IRS.
How to use the treaty in practice
- Confirm who the recipient is and that it is the beneficial owner of the income.
- Identify the type of payment: dividend, interest, royalty, fees for included services or something else.
- Obtain the Tax Residency Certificate and Form 41 (previously Form 10F), plus any no-PE declaration the payer asks for.
- The Indian payer deducts Withholding Tax under Section 393 (previously Section 195) at the treaty rate where conditions are met.
- The US recipient claims a foreign tax credit in its US return for Indian tax paid, under US rules.
When the two countries disagree
If you are taxed in a way that does not follow the treaty, you can ask your country's tax authority to resolve it with the other under the mutual agreement procedure (Article 27). Transfer pricing adjustments can also be dealt with this way. See tax notices and litigation.
What this means for a US parent
- Treaty relief reduces Indian tax at source; it does not remove your US filing. Use the foreign tax credit and keep proof of Indian tax paid.
- Treaty articles carry conditions, so confirm each claim against the treaty text and the current Indian law before relying on it.
Mistakes to avoid
- Assuming the treaty applies automatically without documents.
- Ignoring the beneficial ownership condition when payments pass through another entity.
- Treating the treaty as covering social security.
- Using a rate from a table without checking the payment category.
How AU Corporate handles this
We confirm the treaty position, collect documents and apply the correct Withholding Tax rate on every remittance to the US.
Related services: Taxation and regulatory services
Official sources
Rules on this page can be verified at the primary sources: the Income Tax Department's treaty page, the IRS treaty list and the IRS technical explanation of the India-US treaty.
Frequently asked questions
What is a DTAA?
A double taxation avoidance agreement. It decides which country can tax which income and reduces tax at source on certain cross-border payments.
Does the India-US treaty replace Indian tax law?
No. It works alongside it. The Indian Act applies only to the extent it is more beneficial than the treaty (Section 159 of the Income-tax Act, 2025).
Is the treaty automatic?
No. You must prove residence, usually with a Tax Residency Certificate and Form 41 (previously Form 10F), and meet the conditions for each article.
Does the treaty cover social security tax?
No. Article 2 excludes US social security taxes from the covered taxes.
What is the saving clause?
A US treaty clause that allows the US to tax its own citizens and residents as if the treaty did not exist, subject to listed exceptions.
How is double taxation relieved?
Mainly by a foreign tax credit in the country of residence, and by lower Withholding Tax at source.
What if a tax authority does not follow the treaty?
You can request the mutual agreement procedure so that the two tax authorities resolve the case.
Is a US LLC treated as a US resident under the treaty?
It depends on how the LLC is taxed in the US. A pass-through entity needs specific analysis, so take advice before claiming treaty benefits.
Related guides
India-US DTAA Withholding Tax Rates: Dividends, Interest, Royalties and Fees for Included Services
Treaty rates for payments from India to the US: dividends 15% or 25%, interest 10% or 15%, royalties and fees 10% or 15%. Conditions and how to apply them.
Read the guide →How to Claim India-US Treaty Benefits: Form 6166, Form 41 and Beneficial Ownership
Documents needed to claim India-US treaty rates: IRS Form 6166, Form 41 (previously Form 10F), no-PE declaration and beneficial ownership.
Read the guide →The India-US Tax Treaty and Permanent Establishment Risk for US Companies
How the India-US tax treaty applies to payments to your US parent: Withholding Tax rates, Tax Residency Certificate, Form 41 and permanent establishment risk.
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.