Under the India-US treaty, Indian Withholding Tax on payments to a US resident is generally capped at 15% on dividends (25% if the recipient holds less than 10% of the voting stock), 10% or 15% on interest, and 10% or 15% on royalties and fees for included services. The cap applies only if you hold the right documents, and surcharge and cess rules should be checked with your adviser.
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Key facts
| Dividends | 15% if the recipient company holds at least 10% of the payer's voting stock; 25% otherwise (Article 10) |
|---|---|
| Interest | 10% on loans from banks and similar institutions, including insurers; 15% otherwise (Article 11) |
| Royalties and fees for included services | 10% for equipment royalties and related services; 15% for other covered payments (Article 12) |
| Capital gains | No treaty cap; domestic rules apply (Article 13) |
| Indian section for deduction | Section 393 of the Income-tax Act, 2025 (previously Section 195) |
| Condition | Tax Residency Certificate, Form 41 (previously Form 10F) and beneficial ownership |
Treaty rate cap by type of payment
| Payment | Treaty cap | Indian domestic rate | Condition for the treaty rate |
|---|---|---|---|
| Dividend from the Indian subsidiary to the US parent | 15% | 20% | Recipient is a company holding at least 10% of the voting stock of the payer |
| Dividend, other recipients | 25% | 20% | Other cases. The domestic rate is lower, so it applies |
| Interest on a loan from a bank or similar institution | 10% | 20%; 5% on qualifying external commercial borrowings | Includes an insurance company |
| Interest, other | 15% | 20%; 5% on qualifying external commercial borrowings | Includes interest on loans from a US parent in most cases |
| Royalty for equipment | 10% | 20% | Use of industrial, commercial or scientific equipment, and related ancillary services |
| Royalty, other | 15% | 20% | Patents, know-how, software rights as defined in the treaty |
| Fees for included services (technical services) | 10% or 15% | 20% | Depends on category; services that make available technical knowledge, skill or know-how fall within the article |
| Capital gains | No treaty cap | Domestic rules | Taxed under domestic law (Article 13) |
Dividends to a US parent
India no longer taxes dividends in the paying company's hands. Dividends are taxed in the shareholder's hands, and for a non-resident this means Withholding Tax at the payment. The domestic rate for a foreign company is generally 20% plus surcharge and cess, so the treaty's 15% cap is usually the lower rate for a US parent holding at least 10% of the voting stock.
Interest on loans from the US parent
Interest on a loan from the US 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 have their own lower domestic rates, so compare the domestic and treaty positions. Interest must also be at arm's length. See transfer pricing.
Royalties and fees for included services
The treaty has its own definitions. Fees for included services are limited to services that make available technical knowledge, experience, skill, know-how or processes, or that transfer a technical plan or design. Whether a management fee or a software support fee falls within it needs a case-by-case review of the contract and the facts. Payments outside the definition may be business profits, taxed in India only if the US company has a permanent establishment.
Before each remittance
- Classify the payment under the contract and the treaty.
- Check the Tax Residency Certificate 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 US parent the Withholding Tax certificate for its foreign tax credit claim.
What this means for a US parent
- A lower Indian rate is not free money: the US foreign tax credit is based on tax actually paid, so a lower Indian rate may mean less credit but also less tax paid in total.
- 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 Tax Residency Certificate.
- 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 Embassy of India, Washington table of Indo-US DTAA rates, the Income Tax Department and the IRS technical explanation of the treaty.
Frequently asked questions
What is the Withholding Tax rate on dividends from India to a US parent?
Under the treaty, 15% if the US company holds at least 10% of the voting stock of the Indian company, and 25% otherwise, subject to documents and the domestic rate.
What is the treaty rate on interest?
10% on interest from banks and similar institutions, 15% in other cases.
What is the treaty rate on royalties?
10% for equipment royalties and related services, 15% for other covered royalties.
What are fees for included services?
Fees for services that make available technical knowledge, experience, skill, know-how or processes, or transfer a technical plan or design, as the treaty defines.
Is the treaty rate always applied?
Only if the recipient proves residence and the conditions are met. The lower of the treaty and domestic rate applies.
Do surcharge and cess apply on top?
Domestic rates carry surcharge and cess. Whether they apply on the treaty rate depends on the Act and the payment, so confirm 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 domestic rules generally apply.
Related guides
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 →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 →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 →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.