The India-Japan tax treaty (DTAA) can reduce Withholding Tax on dividends, interest, royalties and fees for technical services paid to your Japanese parent to 10%, if the parent holds a Japanese certificate of residence and files the required declaration (Form 41, previously Form 10F). Separately, a Japanese 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 Japan for the avoidance of double taxation |
|---|---|
| Benefit claimed with | Japanese certificate of residence, 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 (generally 20%) and the 10% treaty rate, where conditions are met |
| PE risk arises from | Fixed place, dependent agents, construction or installation projects beyond the treaty period, and certain other presence |
| Who bears the risk | The Japanese parent, not the Indian subsidiary |
How the treaty helps
Without a treaty, India taxes certain payments to non-residents at domestic rates, generally 20% before surcharge and cess. The India-Japan treaty caps the rate at 10% for dividends, interest, royalties and 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 Japanese parent then relieves double tax under Japanese rules. See treaty withholding rates.
Documents to claim treaty benefits
- Certificate of residence: issued by the Japanese tax office to show the company is a Japanese 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. See claiming treaty benefits.
Permanent establishment: when a Japanese 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 has and habitually exercises authority to conclude contracts for the parent, keeps stock for regular delivery or habitually secures orders |
| Construction or installation PE | A building site or installation project that lasts longer than the period set in the treaty; check the current treaty text for the period |
| Services | The treaty links service presence to specified activities rather than a general service PE; confirm against the treaty text for your facts |
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 Japanese 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 Japanese parent
- The treaty and Japan's foreign tax credit and dividend exemption work together. Your Japanese adviser should review how Indian Withholding Tax is treated.
- Request the certificate of residence early. Processing can take time and certificates have a stated validity.
Mistakes to avoid
- Paying the parent before the certificate of residence and Form 41 are on file.
- Assuming the treaty rate applies automatically.
- Letting Japanese 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: the Income Tax Department and its treaty page, and Japan's National Tax Agency.
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 Japanese certificate of residence, 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 Japanese parent?
An Indian subsidiary is not a permanent establishment of the Japanese 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).
How is Indian tax relieved in Japan?
Through the foreign tax credit and, for qualifying subsidiaries, a 95% dividend exemption. This should be confirmed with a Japanese tax adviser.
What is the India-Japan treaty rate on dividends, interest and royalties?
10% on dividends, interest, and royalties and fees for technical services, subject to documents and the domestic rate.
Does the treaty apply automatically?
No. The parent must prove residence and meet the conditions of each article.
Can an Employer of Record create PE risk?
An Employer of Record does not remove PE risk. If staff in India conclude contracts or act as the parent's agent, a permanent establishment can arise.
Can a short visit create PE risk?
A visit alone rarely does, but repeated visits, contract negotiation or a fixed place of business can.
Related guides
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 →Japanese Parent Obligations When You Own an Indian Subsidiary
Japanese reporting that follows when you own an Indian subsidiary: CFC rules, dividend exemption, transfer pricing documentation, J-SOX and overseas reporting.
Read the guide →Tax Notices and Disputes in India: What Japanese 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 20 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.