The India-Japan tax treaty (DTAA) divides taxing rights between the two countries so income is not taxed twice. It applies to residents of either country, covers income taxes, and lets you use the treaty or domestic law, whichever is more beneficial. Relief comes through lower Withholding Tax at source (10% on dividends, interest, royalties and fees for technical services) and through a foreign tax credit or exemption in Japan.
← Back to the complete guide: How to Set Up a Subsidiary in India from Japan
← Back to India-Japan tax treaty and social security: the complete guide
Key facts
| Instrument | Convention between India and Japan for the avoidance of double taxation and the prevention of fiscal evasion; in force since 1989 and amended since |
|---|---|
| Who qualifies | A person who is a resident of India or Japan under the treaty, including companies |
| Taxes covered | Income taxes in both countries; not social security contributions |
| 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 Japanese certificate of residence, 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 Japan taxes Japanese companies on their worldwide income. The same profit 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 leaves the country of residence to relieve 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 Japan, as defined in the residence article |
| Taxes | Income tax in India; national income taxes and local taxes as the treaty lists for Japan |
| Business profits | Taxable in the source country only if there is a permanent establishment there. See PE risk |
| Dividends, interest, royalties, fees for technical services | Taxable in both countries, with the source country's rate capped at 10%. See withholding rates |
| Capital gains | Gains on shares of an Indian company are taxable in India (Article 13) |
| Employment income | Rules for salaried individuals. See tax residency for expats |
| Relief | Foreign tax credit or exemption in Japan under Japanese law |
How Japan relieves double tax
- Dividend exemption. Japan generally exempts 95% of dividends from a qualifying foreign subsidiary, where the Japanese company holds at least 25% and has held it for at least six months. Indian Withholding Tax on the exempt portion generally cannot be credited.
- Foreign tax credit. Foreign tax paid on other income, such as service fees and royalties, can generally be credited against Japanese tax, subject to limits.
- No indirect credit. Japan generally does not give a deemed-paid credit for the subsidiary's own Indian income tax.
Treaty residence for companies and individuals
- A company is usually a resident where it is incorporated or managed, as the treaty defines. A Japanese parent incorporated in Japan is a Japanese resident.
- An individual who is a resident of both countries under domestic law is resolved by the treaty's tie-breaker tests: permanent home, centre of vital interests, habitual abode, nationality, and then agreement between the tax authorities.
- Treaty residence is proved with a certificate from the home tax authority. For Japan this is a certificate of residence issued by the tax office.
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 technical services or something else.
- Obtain the Japanese certificate of residence 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 Japanese recipient claims relief in its Japanese return under Japanese 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 through the mutual agreement procedure. Transfer pricing adjustments can also be dealt with this way. See tax notices and litigation.
What this means for a Japanese parent
- Treaty relief reduces Indian tax at source; it does not remove your Japanese filing. Keep proof of Indian tax paid for your Japanese return.
- 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.
- Assuming Indian tax on a dividend can be credited in Japan when the dividend is largely exempt.
- 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 Japan.
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 and Japan's National Tax Agency.
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-Japan 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 Japanese certificate of residence and Form 41 (previously Form 10F), and meet the conditions for each article.
Does the treaty cover social security contributions?
No. Social security is handled by the separate Japan-India Social Security Agreement.
How does Japan relieve double taxation?
Mainly through the foreign tax credit and, for qualifying foreign subsidiaries, a 95% exemption for dividends. Confirm the position with a Japanese tax adviser.
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.
Are capital gains on the Indian subsidiary's shares taxed in India?
Gains on shares of an Indian company are generally taxable in India under the treaty, subject to its conditions and domestic law.
Do I need a Japanese tax adviser?
Yes, for the Japanese side. AU Corporate handles the Indian side and works with your adviser.
Related guides
India-Japan DTAA Withholding Tax Rates: Dividends, Interest, Royalties and Fees for Technical Services
Treaty rates for payments from India to Japan: 10% on dividends, interest, royalties and fees for technical services, against 20% domestic rates.
Read the guide →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 →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 →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.