India US DTAA for Companies in 2026 with Rates, FIS, LOB and PE

Written by Nihal Srivastava, Krystal7 Consultants. Last updated 2 October 2026.

The India US DTAA caps Indian tax on dividends at 15 percent for a US company owning at least 10 percent of the voting stock. Other dividends bear up to 25 percent. Interest is capped at 10 percent for banks and 15 percent for other lenders. Royalties and fees for included services bear up to 15 percent. A service fee counts only if it makes technology available. Capital gains follow domestic law. Claims need IRS Form 6166 and Form 41 under section 159(8) of the Income Tax Act, 2025.

This page covers the rates, fees for included services, permanent establishment, the limitation on benefits article, capital gains, documents and the US foreign tax credit. Rupee amounts use Indian grouping: INR 1,00,00,000 is one crore.

What is the India US DTAA?

The India US DTAA is the income tax convention India and the United States signed in New Delhi on 12 Sep 1989. It entered into force on 18 Dec 1990. India notified it by GSR 992(E) of 20 Dec 1990, corrected by GSR 342(E) of 12 Jul 1991. A Protocol signed the same day forms part of it.

The convention decides which country may tax a US company's Indian income. It also caps the Indian rate on dividends, interest, royalties and fees for included services.

Item	Detail	Where it sits
Signed	12 Sep 1989, New Delhi	Convention and Protocol
In force	18 Dec 1990	Article 30
Effect in India	Income of taxable years beginning on or after 1 Apr 1991	Article 30(2)(b)
Effect in the US	Amounts paid or credited from 1 Jan 1991 (withholding)	Article 30(2)(a)
Indian notification	GSR 992(E), 20 Dec 1990; corrected by GSR 342(E), 12 Jul 1991	incometaxindia.gov.in
Memorandum of Understanding on fees for included services	Dated 15 May 1989	Published with the convention by the IRS
Indian taxes covered	Income tax "including any surcharge thereon"	Article 2(1)(b)
Amending protocols since 1990	None listed on the Indian treaty page, read 2 Oct 2026	incometaxindia.gov.in
Multilateral Instrument (MLI)	India's treaty page shows no MLI synthesised text for the US treaty, read 2 Oct 2026	incometaxindia.gov.in

The treaty has 31 articles. Companies mostly use Articles 4, 5, 7, 10, 11, 12, 13, 23, 24, 25 and 27. Article 14 adds a separate "permanent establishment tax" rule, which most treaties do not have.

From 1 Apr 2026, section 159 of the Income Tax Act, 2025 gives effect to the treaty in India. It replaced section 90 of the 1961 Act. Under section 159(4), the Act applies to a treaty resident only to the extent it is more beneficial. So the US company takes the better of the Act and the treaty. Section 159(6) still applies the General Anti Avoidance Rule (GAAR) in Chapter XI.

If the US company has no Indian entity yet, read our guide on how to set up a subsidiary in India for US companies.

Which rates does the India US DTAA set for dividends, interest and royalties?

The treaty caps Indian tax on dividends at 15 percent for a company owning at least 10 percent of the voting stock. Other dividends bear up to 25 percent. Interest is capped at 10 percent on bank loans and 15 percent on other loans. Royalties and fees for included services are capped at 15 percent, and equipment rentals at 10 percent.

Income from India	Article	Treaty cap	Condition	Domestic rate for a foreign company, tax year 2026-27 (before surcharge and cess)
Dividends	10(2)(a)	15%	Beneficial owner is a company owning at least 10% of the voting stock	20%, section 207(1)
Dividends	10(2)(b)	25%	All other cases	20%, section 207(1)
Interest on a loan from a bank or similar financial institution, including an insurer	11(2)(a)	10%	Beneficial owner; bona fide banking business	20% on foreign currency loans; 35% on rupee loans
Interest from other lenders, such as a US parent	11(2)(b)	15%	Beneficial owner	20% on foreign currency loans; 35% on rupee loans
Interest to the US Government, the Federal Reserve or US Exim Bank loans	11(3)	Exempt	As listed in 11(3)	Not relevant once exempt
Royalties for copyright, patents, trade marks, designs, secret processes and know how	12(2)(a)(ii), 12(3)(a)	15%	Beneficial owner	20%, section 207(2)
Fees for included services	12(2)(a)(ii), 12(4)	15%	Ancillary to a royalty, or makes technology available, or transfers a technical plan or design	20%, section 207(2)
Rentals for industrial, commercial or scientific equipment, and services ancillary to them	12(2)(b), 12(3)(b)	10%	Beneficial owner	20% where section 9(6) treats the rental as royalty
Other service fees	7	Nil without a PE	No permanent establishment in India	Depends on section 9
Capital gains	13	No cap	Each country taxes under its own law	12.5% long term, 35% short term (unlisted shares)
Income not dealt with elsewhere, arising in India	23(3)	No cap	India may tax	Rate in force

Sources: India US DTAA; sections 197 and 207 of the Income Tax Act, 2025; Finance Act, 2026, First Schedule.

The royalty and included services rate had a step down. For the first five taxable years the cap was 20 percent, or 15 percent where the payer was a government or public sector company. From the sixth taxable year it became 15 percent for everyone. On our count, that change took effect in India from tax year 1996-97.

The Indian payer deducts tax under section 393(2), Table serial 17, at the "rates in force": the Finance Act rate or the treaty rate. Our guide to TDS on payments to non residents covers the mechanics.

Articles 10(4), 11(5) and 12(6) remove the cap where the holding, loan or contract is effectively connected with an Indian PE. The income then falls under Article 7 as business profit.

Under Article 11(7), excess interest between related parties gets no treaty relief. Article 12(8) does the same for royalties and included services. India taxes the excess at the domestic rate.

How do the treaty rates compare with Indian domestic rates?

The treaty rate wins for dividends to a 10 percent holder, interest, royalties and included services. The domestic rate wins for dividends to a holder below 10 percent, because 20 percent plus surcharge and cess is below 25 percent. Section 159(4) lets the US company use whichever is more beneficial, item by item.

Domestic rates carry surcharge and 4 percent Health and Education Cess. A foreign company's surcharge is 2 percent above INR 1,00,00,000 of income in the year. It is 5 percent above INR 10,00,00,000. Add up dividends, interest, royalties and fees to one payee before you pick the slab.

Payment to a US company	Domestic base rate	Effective rate, no surcharge (income up to INR 1 crore)	Effective rate, 2% surcharge slab	Effective rate, 5% surcharge slab	Treaty cap	Rate we apply
Dividend, 10% or more of voting stock	20%	20.8%	21.216%	21.84%	15%	15% treaty
Dividend, below 10% of voting stock	20%	20.8%	21.216%	21.84%	25%	Domestic rate
Interest on a foreign currency loan from the parent	20%	20.8%	21.216%	21.84%	15%	15% treaty
Interest on a rupee loan from the parent	35%	36.4%	37.128%	38.22%	15%	15% treaty
Royalty	20%	20.8%	21.216%	21.84%	15%	15% treaty
Fee for included services	20%	20.8%	21.216%	21.84%	15%	15% treaty
Long term gain on unlisted shares	12.5%	13%	13.26%	13.65%	None	Domestic rate

We apply the treaty rate flat, without surcharge or cess. Article 2(1)(b) names Indian income tax "including any surcharge thereon" as a covered tax. Tribunal rulings treat cess the same way, but no CBDT circular settles the point. So Form 146 should state the article and the flat rate.

Rupee interest shows the widest gap. The 5 percent rate in serial 2 of section 393(2) covers only foreign currency borrowings from 1 Jul 2012 to 30 Jun 2023. See our note on an ECB loan from a foreign parent.

The dividend gap is smaller than under several other treaties. India's treaties with the UK, the Netherlands and Singapore cap dividends at 10 percent for qualifying holders, against 15 percent here. So a US parent saves about 6.2 points against the domestic rate in the 2 percent slab, not 11. Our India Singapore DTAA guide shows the contrast.

What are fees for included services under the India US treaty?

Under Article 12(4), a payment for technical or consultancy services is a fee for included services (FIS) in two cases only. The service is ancillary and subsidiary to a royalty, or it makes available technical knowledge, experience, skill, know how or processes. Developing and transferring a technical plan or design also counts. Other service fees are business profits under Article 7.

Indian domestic law is wider. Section 9(7) of the Income Tax Act, 2025 covers fees for "managerial, technical or consultancy services". A fee an Indian resident pays is Indian income. Section 9(11) applies this whether or not the US company rendered the services in India. Section 159(4) lets the US company use the narrower treaty test.

Two gaps between the treaty and the Act matter in practice:

1. Managerial services. Article 12(4) covers "technical or consultancy services" only. The word "managerial" is missing. On our reading, a pure management fee is business profit under Article 7, unless it is also technical or consultancy work.
2. Make available. A technical service that does not transfer the technology is outside Article 12(4)(b).

The Memorandum of Understanding of 15 May 1989 explains the test. It says technology is "made available" when the person acquiring the service is enabled to apply it. It adds that a service needing technical input does not, for that reason alone, make knowledge available.

Memorandum example	Facts in short	Fee for included services?	Reason the memorandum gives
Example 1	US manufacturer licenses a process and consults on using it	Yes	Ancillary and subsidiary to the licensed right
Example 2	US company rents equipment and also cleans the machinery	No	Cleaning is the predominant purpose, not ancillary to the rental
Example 3	US experts train Indian staff in a wallboard process	Yes	Makes available technical knowledge, skill and processes
Example 4	US manufacturer fabricates wallboard for the Indian buyer at its plant outside India	No	Contract manufacturing transfers no technology
Example 5	US firm modifies the Indian company's inventory software	Yes	Develops and transfers a technical plan (the program)
Example 6	US company modifies a production formula and trains employees	Yes	Technical knowledge made available through training
Example 7	US consultant runs a market simulation and advises on strategy	No	Commercial information; technical skill used but not transferred

Article 12(5) also excludes some payments from FIS. These include services ancillary and inextricably linked to a sale of property, and services ancillary to renting ships, aircraft or containers in international traffic. Teaching by educational institutions and services for the payer's personal use are excluded too. So are payments to employees, and to individuals or firms of individuals for professional services.

Service from a US parent to its Indian subsidiary	Article 12(4) result, on our reading	Indian tax without a PE	What we keep on file
Group finance, HR and legal support calls	Usually not FIS	Nil under Article 7	Service logs; staff days in India
Management fee for group strategy and oversight	Not FIS if purely managerial	Nil under Article 7	Agreement showing the nature of the work
Global IT helpdesk run from the US	Usually not FIS	Nil	Tickets and service levels
Training that lets Indian engineers run a system alone	FIS, 12(4)(b)	15%	Training plan and sign off
Design and handover of a technical plan	FIS, 12(4)(b)	15%	The deliverable
Support ancillary to a software or trade mark licence	FIS, 12(4)(a)	15%	Licence and support agreement
Market research and sales strategy	Usually not FIS (Example 7)	Nil	Reports showing commercial content

We ask the parent's team one question. What can the Indian staff do alone after the service that they could not do before? That answer usually decides the rate.

A fee outside Article 12 still goes on Form 145, in Part D, with a written treaty analysis on file. Our Form 15CA and 15CB guide explains the parts, now in Forms 145 and 146.

The FIS test has a second effect. Article 5(2)(l), the service PE rule, excludes "included services as defined in Article 12". So FIS cannot create a service PE, but a support service that is not FIS can.

When does a US company have a PE in India?

A US company has a permanent establishment (PE) in India through a fixed place of business, such as an office, branch or factory. A construction or installation project lasting more than 120 days in any 12 month period is a PE. Staff furnishing services other than FIS create a PE once they exceed 90 days in any 12 month period. For services to a related enterprise, the treaty sets no minimum period.

PE trigger	Article	Threshold	Typical risk for a US parent
Fixed place of business: place of management, branch, office, factory, workshop, warehouse, store	5(1), 5(2)(a) to (i)	No day count in the text	Parent staff using a room in the Indian office as their own
Natural resource exploration installation	5(2)(j)	More than 120 days in any 12 month period	Oil and gas or mining work
Building site, construction, installation or assembly project, or supervision of one	5(2)(k)	More than 120 days in any 12 month period, counting other such sites	Plant set up, or supervision of a build, for the Indian subsidiary
Service PE through employees or other personnel	5(2)(l)(i)	More than 90 days in any 12 month period	Consultants on site for an Indian customer
Service PE for a related enterprise	5(2)(l)(ii)	No minimum period in the text	Parent staff working in India for the Indian subsidiary
Dependent agent	5(4)	Habitually concludes contracts, keeps and delivers stock with sales activity, or habitually secures orders wholly or almost wholly for the enterprise	Indian staff negotiating and closing deals for the parent
Agent working wholly or almost wholly for the enterprise, not at arm's length	5(5)	Not an agent of independent status	Indian distributor tied to the group on non arm's length terms
Preparatory or auxiliary place, storage, display, purchasing, information	5(3)	Not a PE	Liaison or sourcing work only
Subsidiary	5(6)	Control alone does not make it a PE	Holds while the subsidiary acts for itself

Source: India US DTAA, Article 5, and Protocol paragraph I.

The related enterprise limb is the rule we see missed most often. Article 5(2)(l)(ii) applies when services "are performed within that State for a related enterprise", with no day count. On our reading, a US parent's staff serving the Indian subsidiary in India can create a service PE quickly, unless the service is FIS.

Protocol paragraph I softens one edge. Some PEs under 5(2)(j), (k) or (l) span two taxable years. No PE exists in a year with less than 30 days of activity. India then taxes only the income of the other year.

The Supreme Court applied Article 5 in DIT (International Taxation) v. Morgan Stanley & Co. Inc. on 9 Jul 2007. It held that back office work done in India for the US group was preparatory or auxiliary under Article 5(3)(e). It found a service PE where US employees were deputed to work in India while staying on the US payroll. Stewardship visits to check quality did not create one.

The Court also ruled on profit attribution. If the Indian entity earns an arm's length fee for all its functions and risks, nothing further is left to attribute to the PE.

What happens once a PE exists?

Article 7(1) lets India tax the profits attributable to the PE. It also reaches sales in India of goods of the same kind sold through the PE, and similar business activities. This is a limited "force of attraction" rule.

India taxes PE profit at the foreign company rate of 35 percent, plus surcharge and cess, through a return. Article 14(2) allows this higher rate. It caps the gap over the domestic company rate at 15 percentage points. Section 159(5) of the 2025 Act confirms a higher rate for foreign companies is not discrimination.

Article 7(3) also bars deductions for royalties, fees or interest the PE pays to its own head office, except interest for banks. Protocol paragraph II sets a floor for head office expenses. Our guide on how to avoid permanent establishment risk covers the controls.

Can a US company be resident in India too?

Yes, and the result is harsh. Section 6(10) of the Income Tax Act, 2025 makes a company resident in India if its place of effective management is in India. A Delaware company run from Bengaluru by its Indian founders can meet that test.

Article 4(3) of the US treaty has no tie breaker for companies. A company resident in both countries is "outside the scope" of the convention. It keeps only Article 10(2), Article 26, Article 27, Article 28 and Article 30. So a dual resident US company loses the treaty caps on interest, royalties and fees, and the PE protection. Founders who live in India should take the US company's key decisions outside India and minute them.

What does the LOB article in Article 24 require?

Article 24 grants treaty benefits to a US company only if it passes the ownership test and the base erosion test, or an exception. Under the ownership test, qualifying persons must own more than 50 percent of each class of its shares, directly or indirectly. Under the base erosion test, its income must not go in substantial part to non qualifying persons.

Qualifying owners are individual residents of India or the US, the two Governments, US citizens, and other individuals taxed in either country on worldwide income. Indian resident founders count as qualifying owners. Foreign funds and companies from third countries do not count as such.

Test	Paragraph	What the text requires	How we evidence it
Ownership	24(1)(a)	More than 50% of the beneficial interest, or of each class of shares for a company, owned directly or indirectly by qualifying persons	Cap table traced through each holding layer to individuals
Base erosion	24(1)(b)	Income not used in substantial part, directly or indirectly, to meet liabilities (including interest or royalties) to non qualifying persons	Payments by the US company to third country lenders and licensors
Active trade or business	24(2)	Indian income derived in connection with, or incidental to, the active conduct of a trade or business in the US; making or managing investments does not count unless banking or insurance	US revenue, staff and operations linked to the Indian activity
Publicly traded	24(3)	Substantial and regular trading in the principal class of shares on a recognised stock exchange (NASDAQ or an SEC registered national exchange)	Listing and trading record
Competent authority discretion	24(4)	The Indian competent authority may grant benefits even if the tests fail	Application to the Indian competent authority

Source: India US DTAA, Article 24.

Venture backed US companies can fail Article 24. A Delaware C corporation owned 60 percent by Cayman and Singapore funds can fail the ownership test. It then needs the active business exception in Article 24(2).

That exception works for an operating company with real US customers and staff. It fails for a US holding company whose only asset is the Indian subsidiary. Such a company's business is "making or managing investments", which Article 24(2) excludes.

The base erosion test catches a different structure. A US company may be owned by US founders but pay most of its income as interest or royalties to a third country group company. Its income then goes "in substantial part" to non qualifying persons. The treaty does not define "substantial".

We ask every US parent for an LOB declaration with its cap table, signed by an officer. Indian payers rarely ask for it, but a tax officer can.

Does the MLI or the principal purpose test apply?

The official record shows no MLI text for this treaty. India's treaty page shows no MLI synthesised text for the US treaty, and lists no amending protocol. So we apply the 1989 text as it stands, without the MLI principal purpose test or preamble.

India's domestic rules still apply. Section 159(6) of the Income Tax Act, 2025 applies GAAR in Chapter XI even where the treaty is more beneficial. The beneficial ownership tests in Articles 10, 11 and 12 also remain. Our reading is that Article 24, GAAR and beneficial ownership together do the work the PPT does in other treaties.

How are capital gains taxed under the India US treaty?

Article 13 lets each country tax capital gains under its own domestic law. So India taxes a US company's gain on Indian shares at full domestic rates, with no treaty cap or exemption. Unlisted shares held more than 24 months give long term gains at 12.5 percent under section 197. Short term gains bear 35 percent. Surcharge and cess apply on top.

This is the biggest difference from the Mauritius, Singapore and Netherlands treaties. The US treaty never gave residence based protection for share gains. Shares a US company bought before 1 Apr 2017 get no grandfathering under the treaty.

Gain made by a US company	Who may tax	Indian rate (before surcharge and cess)	Treaty protection
Sale of shares in an Indian unlisted company, held more than 24 months	India and the US	12.5%, section 197	None; Article 13 refers to domestic law
Sale of those shares, held 24 months or less	India and the US	35%	None
Buy back by the Indian company from 1 Apr 2026	India and the US	Capital gains rates; section 69 extra tax for promoters	None, on our reading
Sale of shares in a US company that derives its value substantially from Indian assets	India under section 9(10), if the indirect transfer rules apply	Domestic rates	None
Ships, aircraft or containers in international traffic	US only	Not taxable in India	Article 8(6)

Source: India US DTAA, Articles 8 and 13; sections 9(10) and 197 of the Income Tax Act, 2025.

Section 197(4) computes a foreign company's gain on unlisted securities in rupees, without the foreign currency method. So rupee depreciation over the holding period raises the Indian gain.

The Finance Act, 2026 taxes buy back consideration as a capital gain from 1 Apr 2026. It omitted the deemed dividend clause in section 2(40)(f). Section 69 adds a further tax for promoters. A holder above 10 percent of an unlisted company counts as a promoter. A wholly owned Indian subsidiary's US parent is therefore a promoter for this purpose.

A resident buyer withholds under section 393(2), serial 17, on the sum chargeable. Article 25 then decides whether the US gives credit for the Indian tax. Our note on share transfers between residents and non residents covers the FEMA side of a sale.

Which documents does a US company need to claim treaty rates?

Section 159(8) of the Income Tax Act, 2025 needs a tax residency certificate from the US Government and the prescribed information. The IRS issues the certificate as Form 6166, on an application in Form 8802. The prescribed information is Form 41, filed online under rule 75. The Indian payer also wants a PAN or rule 217 details, declarations, and a chartered accountant's Form 146.

Document	Issued or filed by	What it supports	Timing
Form 6166, US residency certification	IRS, on Form 8802	Section 159(8)(a); Article 4	Must cover the tax year of each payment
Form 41 (old Form 10F)	US company, online, verified by EVC, DSC or OTP	Section 159(8)(b); rule 75	Once per tax year, before the first payment
PAN, or the six rule 217 details	US company	Avoids the higher rate under section 397(2)	Before tax is deducted
Beneficial ownership declaration, with the register showing at least 10% voting stock	US company and Indian company	Articles 10(2), 11(2) and 12(2)	Each year, and on each dividend date
No PE declaration	US company	Articles 7, 10(4), 11(5) and 12(6)	Each year, updated on any change
LOB declaration with the cap table	US company	Article 24	Each year, and on any change in ownership
Service agreement and evidence of what was made available	Both companies	Article 12(4)	Before the first invoice
Form 146 (old 15CB), then Form 145 (old 15CA)	Chartered accountant, then Indian company	Rate and article examined; remittance information	Before the money leaves India
Form 131 (old 16A)	Indian company, from TRACES	Credit for Indian tax in the US company's Indian return	Within 15 days of the Form 144 due date

Form 6166 is a letter on US Treasury letterhead. It certifies that the company is a US resident for federal tax purposes. The IRS page says use of Form 8802 is mandatory and applications go by mail or fax. For a current year request, the applicant attests to its current residency status under penalties of perjury.

The IRS raised the Form 8802 user fee from 1 Oct 2026. Business applicants now pay USD 230 instead of USD 185. Individuals pay USD 105 instead of USD 85.

The Form 41 guidance note says the form is filed "only once in a tax year" and PAN is optional. It also says: "Benefit of DTAA is available only with filing of Form 41." A filer without a PAN verifies by OTP. Still, the US company needs a PAN for the Indian return a treaty rate triggers, and for a downloadable Form 131.

Rule 217 lists six details that stop the higher rate under section 397(2). It covers interest, royalties, technical fees, dividends and capital asset transfers. The details are name, email, contact number, address in the US, the tax residency certificate and the US tax identification number. For a US company, that is the employer identification number (EIN).

If Form 6166 is late, the Indian company deducts at the domestic rate. The US company then claims the excess through its Indian return. The other route is a lower deduction certificate in Form 128 under section 395(1). Our note on lower TDS certificates covers that application.

Does a US company have to file an Indian tax return?

Yes, whenever it takes a treaty rate below the domestic rate. Section 207(8) of the Income Tax Act, 2025 excuses a foreign company only on two conditions. Its Indian income must consist of section 207 items, and tax must be deducted at the section 207 rate or more. A 15 percent treaty rate fails the second condition.

So a US parent paid a dividend at 15 percent files an Indian return for that tax year. It needs a PAN, and section 263 sets the due date.

For the year ended 31 Mar 2026, CBDT Circular No. 07/2026 of 28 Sep 2026 moved the return due date from 31 Oct 2026 to 21 Nov 2026. That covers companies without a transfer pricing report. It does not change the 30 Nov 2026 date for companies that file a transfer pricing report. A US parent receiving royalties or fees from its subsidiary has international transactions. Check whether the parent itself needs Form 3CEB for that year, because that decides its date.

Capital gains and PE profits also need a return. On our reading, section 207(8) covers dividends, interest, royalties and technical fees, not capital gains. We file the parent's return on the same engagement as the Form 146, so the Form 131 credit matches.

How does the US give credit for Indian tax under Article 25?

Article 25(1) requires the US to credit Indian income tax paid by a US resident or citizen. The credit is "subject to the limitations of the law of the United States". It also provides an indirect credit for a US company owning at least 10 percent of the voting stock. Since 2018, US law has removed most of that indirect credit.

Three US rules matter for a US parent of an Indian subsidiary. Confirm each with the parent's US tax adviser.

US rule	What it says	Effect on Indian tax
Section 245A(a), Internal Revenue Code	A US corporation that is a 10 percent US shareholder deducts the foreign source portion of a dividend from a specified 10 percent owned foreign corporation	The Indian dividend is often free of US tax
Section 245A(d)(1)	No credit under section 901 for foreign taxes on a dividend for which the section 245A deduction is allowed	The 15 percent Indian tax on that dividend becomes a final cost
Section 902, repealed	Pub. L. 115-97, section 14301(a), repealed the deemed paid credit for foreign corporation years beginning after 31 Dec 2017	Article 25(1)(b) has little practical effect for current years
Section 901 and Article 25(3)	Direct credit for Indian tax on royalties and fees; the treaty deems income India may tax under the treaty to arise in India	Indian tax on royalties and FIS can usually be credited, subject to US limits

Sources: 26 U.S.C. 245A and 902; India US DTAA, Article 25.

This changes the dividend versus royalty choice, because only the Indian tax on a royalty or fee is usually creditable. The Indian subsidiary, though, must justify any royalty or fee under transfer pricing rules. Our guide on transfer pricing between a US parent and an Indian subsidiary covers that file.

What about an Indian company receiving income from the US?

The treaty is reciprocal. Take a US company paying a dividend to an Indian company with at least 10 percent of its voting stock. It withholds at no more than 15 percent. Interest, royalties and FIS follow the same caps as above. The Indian company gives the US payer a Form W-8BEN-E claiming treaty benefits.

Indian SMEs selling services to US customers mostly earn business profits. Under Article 7, the US may tax those only through a US PE. A US customer may still ask for Form W-8BEN-E to document that position.

To prove Indian residence, the Indian company applies in Form 42 and receives a certificate in Form 43 under section 159. India then gives credit under Article 25(2) for US tax on income the US may tax under the treaty. The company claims it in Form 44 (old Form 67). Article 24 applies to the Indian company too. Its own Indian ownership and active Indian business usually satisfy it.

How does Article 23 treat income the treaty does not name?

Article 23(1) says income not dealt with elsewhere is taxable only in the country of residence. Article 23(3) then lets the source country tax such income arising there as well. So India may tax a US company's Indian income that no other article covers, at the domestic rate.

A guarantee commission paid by an Indian company to its US parent is a common case. On our reading, the US treaty gives no cap on it. We test each unusual payment against Articles 7, 11, 12 and 23 before assuming any relief.

How do the MAP and transfer pricing articles help a US group?

Article 9(1) lets India adjust an Indian subsidiary's profits to arm's length. Article 9(2) requires the US to make a corresponding adjustment where the Indian adjustment is correct. Under Article 27, either company may take a case to its own competent authority. It must do so within three years of notice of the action.

The Indian application to invoke the mutual agreement procedure is Form 55 (old Form 34F). A bilateral advance pricing agreement with the US starts with a pre filing consultation in Form 50 and an application in Form 51.

Route	Indian form	What it settles	Who signs
Mutual agreement procedure	Form 55 (old 34F)	A specific dispute after an adjustment	Indian or US taxpayer, through its own competent authority
Bilateral advance pricing agreement, pre filing	Form 50 (old 3CEC)	Whether the case fits an APA	Indian taxpayer
Bilateral advance pricing agreement	Form 51 (old 3CED)	Pricing method for future years, with both countries	Indian taxpayer; both competent authorities
Transfer pricing report	Form 48 (old 3CEB)	Yearly report of international transactions	Accountant, under section 172

Article 27(2) says an agreed result is implemented despite domestic time limits. Article 28 lets the two tax authorities exchange information to apply the treaty and their domestic laws.

What changed in 2026

The treaty text did not change in 2026. The Indian treaty page lists no amending protocol after the 1991 correction, when we checked it on 2 Oct 2026. The Indian law around the treaty changed: a new Act, new rules and new forms. The IRS fee for the residence certificate also rose.

Item	Until 31 Mar 2026	From 1 Apr 2026	Instrument
Treaty relief and the more beneficial rule	Section 90(1) and 90(2)	Section 159(4)	Income Tax Act, 2025
GAAR override of treaties	Section 90(2A)	Section 159(6)	Income Tax Act, 2025
Higher rate for foreign companies not discrimination	Explanation 1 to section 90	Section 159(5)	Income Tax Act, 2025
Tax residency certificate and other documents	Section 90(4) and 90(5)	Section 159(8)(a) and 159(8)(b)	Income Tax Act, 2025
Treaty information form	Form 10F, rule 21AB	Form 41, rule 75	Income Tax Rules, 2026
Withholding on payments to non residents	Section 195	Section 393(2), Table serial 17	Income Tax Act, 2025
Rates on dividends, interest, royalties and technical fees	Section 115A	Section 207	Income Tax Act, 2025
Return filing exemption	Section 115A(5)	Section 207(8)	Income Tax Act, 2025
Royalty, interest and FTS source rules	Section 9(1)(v) to (vii)	Section 9(5) to 9(7)	Income Tax Act, 2025
Remittance, statement and certificate forms	Forms 15CA, 15CB, 27Q and 16A	Forms 145, 146, 144 and 131	Income Tax Rules, 2026
MAP and APA forms	Forms 34F, 3CEC, 3CED	Forms 55, 50, 51	Income Tax Rules, 2026
Buy back by an Indian company	Deemed dividend from 1 Oct 2024, so Article 10 and the 15% cap	Capital gain, so Article 13 and domestic rates, on our reading	Finance Act, 2026
Return due date, year ended 31 Mar 2026, non TP company	31 Oct 2026	21 Nov 2026	CBDT Circular No. 07/2026, 28 Sep 2026
IRS Form 8802 user fee, business applicant	USD 185	USD 230 from 1 Oct 2026	IRS Form 6166 page

Forms 146 and bank letters should now cite sections 159 and 393, not sections 90 and 195. The other changes are mapped in our note on the Income Tax Act, 2025.

Worked example

A US parent receiving a dividend, a royalty and a support fee

USCo Inc. is a Delaware corporation resident in the US. It sells software to US customers from its US office. Its founders, all individuals resident in India or the US, hold 60 percent of each class of its shares. USCo owns 100 percent of IndiaCo Private Limited, with a nominee holding one share.

In tax year 2026-27 IndiaCo pays USCo three amounts:

1. A trade mark royalty of INR 1,50,00,000. IndiaCo uses the USCo brand under a licence. It books the royalty on 31 Oct 2026.
2. An interim dividend of INR 4,00,00,000. IndiaCo's Board declares it on 10 Nov 2026 under section 123(3).
3. A support fee of INR 80,00,000. USCo's US team gives finance and HR support by video calls, with nothing made available. No USCo staff work in India.

USCo holds a Form 6166 for 2026 and 2027 and filed Form 41 for tax year 2026-27 in May 2026. It has a PAN and has given beneficial ownership, no PE and LOB declarations. Its founders' 60 percent holding passes Article 24(1)(a), and it pays no large sums to third country persons.

The royalty falls under Article 12(3)(a) and bears 15 percent. USCo owns more than 10 percent of IndiaCo's voting stock, so the dividend bears 15 percent under Article 10(2)(a). The support fee is not FIS, and USCo has no PE in India. So it is business profit under Article 7 and bears no Indian tax.

Without the treaty papers, the dividend and royalty bear the domestic 20 percent. The year's total to USCo is INR 6,30,00,000, in the 2 percent surcharge slab. The support fee would then usually be a fee for technical services under section 9(7), also at 20 percent.

Line (INR)	Dividend, treaty route	Dividend, domestic route	Royalty, treaty route	Royalty, domestic route
Gross amount	4,00,00,000	4,00,00,000	1,50,00,000	1,50,00,000
Base tax at 15% or 20%	60,00,000	80,00,000	22,50,000	30,00,000
Surcharge at 2% of base tax	Nil	1,60,000	Nil	60,000
Health and Education Cess at 4%	Nil	3,26,400	Nil	1,22,400
Tax withheld	60,00,000	84,86,400	22,50,000	31,82,400
Effective rate	15%	21.216%	15%	21.216%
Net amount remitted	3,40,00,000	3,15,13,600	1,27,50,000	1,18,17,600

On the dividend and royalty, IndiaCo withholds INR 82,50,000 on the treaty route, against INR 1,16,68,800 on the domestic route. USCo receives INR 34,18,800 more. The support fee of INR 80,00,000 is paid gross on the treaty route, if the Article 7 analysis holds. On the domestic route it bears 21.216 percent, which is INR 16,97,280. So the treaty papers save INR 51,16,080 across the three payments.

On the US side, section 245A(d) often blocks a credit for the INR 60,00,000 dividend tax. The INR 22,50,000 royalty tax is usually creditable within US limits. USCo's US adviser confirms both.

Date	Step	Rule
31 Oct 2026	Book the royalty and deduct INR 22,50,000	Section 393(2), serial 17
Before the royalty leaves India	Obtain Form 146 citing Article 12; file Form 145, Part C	Rule 220
7 Nov 2026	Deposit the tax on the royalty	Rule 218(2)
10 Nov 2026	Declare the dividend, book it and deduct INR 60,00,000	Companies Act s.123(3); section 393(2)
By 15 Nov 2026	Deposit the dividend in a separate bank account	Companies Act s.123(4)
7 Dec 2026	Deposit the tax on the dividend	Rule 218(2)
By 10 Dec 2026	Pay the dividend to USCo's bank account, after Forms 146 and 145	Companies Act s.127; rule 220
Before paying the support fee	Keep the Article 7 analysis; file Form 145, Part D	Rule 220
By 31 Jan 2027	File Form 144 for October to December 2026 at the treaty rates	Rule 219
By 15 Feb 2027	Issue Form 131 for both payments	Rule 215
Section 263 due date	USCo files its Indian return for tax year 2026-27	Section 207(8)

IndiaCo also pays IGST on the imported royalty and fee under reverse charge and usually claims it back as input tax credit. It reports the royalty and the fee in its transfer pricing report in Form 48 under section 172. Our guide to dividends from an Indian subsidiary to a foreign parent covers the company law steps.

The same support fee with staff in India

Now suppose two USCo finance staff spend 25 days at IndiaCo's Pune office in the tax year. They run IndiaCo's month end close themselves. The work is not FIS, because nothing is made available.

Article 5(2)(l)(ii) sets no day count for services performed in India for a related enterprise. On our reading, USCo now has a service PE in India. India can tax the profit attributable to that PE at 35 percent plus surcharge and cess, through a return.

Two fixes are open. USCo can keep the work remote, with no staff time in India. Or IndiaCo can employ or second the staff on a clear arm's length basis, so Morgan Stanley's attribution reasoning can apply. The place of work and the nature of the service decide the result, not the invoice label.

A small US shareholder

Assume instead that US Ventures Inc., a US corporation, holds 6 percent of IndiaCo's voting shares. It receives a dividend of INR 50,00,000, with no other Indian income in the year.

The treaty cap is 25 percent under Article 10(2)(b), because the holding is below 10 percent. The domestic rate is 20 percent plus 4 percent cess, or 20.8 percent. No surcharge applies up to INR 1,00,00,000.

Line (INR)	Treaty, Article 10(2)(b)	Domestic, section 207(1)
Gross dividend	50,00,000	50,00,000
Tax	12,50,000	10,40,000
Effective rate	25%	20.8%

The Act is more beneficial here, so under section 159(4) IndiaCo deducts INR 10,40,000 at the domestic rate. US Ventures needs no Form 6166 or Form 41 for this dividend. Since tax is deducted at the section 207 rate, section 207(8) can also excuse its Indian return.

Common mistakes

1. Applying 10 percent to dividends because other treaties do. Fix: apply 15 percent under Article 10(2)(a). It needs a company with at least 10 percent of the voting stock.
2. Applying the 25 percent treaty rate to a small holder. Fix: compare with the domestic 20 percent plus cess. Use the lower rate under section 159(4).
3. Adding surcharge and cess to the treaty rate. Fix: apply the treaty rate flat and cite the article in Form 146.
4. Treating every service fee as a 15 percent included service. Fix: test each service against Article 12(4) and the 1989 Memorandum. A fee that makes nothing available bears no Indian tax without a PE.
5. Borrowing the 90 day service PE count for work done for the subsidiary. Fix: read Article 5(2)(l)(ii). Track every day parent staff spend in India working for the subsidiary.
6. Assuming the treaty protects a share sale. Fix: plan for Indian tax on the gain under Article 13 and section 197. The buyer withholds it.
7. Ignoring Article 24 for a fund owned US company. Fix: trace the cap table to individuals. Test the active business exception if ownership fails.
8. Running the US company from India. Fix: keep the US company's key decisions outside India. Article 4(3) leaves a dual resident company almost no treaty benefits.
9. Expecting a US credit for Indian dividend tax. Fix: ask the US adviser about section 245A(d) before choosing a dividend or a royalty.
10. Telling the parent the treaty rate ends its Indian filings. Fix: plan a PAN and an Indian return under section 207(8).
11. Applying for Form 6166 after the payment date. Fix: file Form 8802 early in the year, at the new USD 230 fee.
12. Citing sections 90 and 195 in a 2026 Form 146. Fix: cite sections 159, 207 and 393(2), serial 17.

Checklist for claiming India US treaty benefits

1. Confirm the US company holds a Form 6166 covering each payment year.
2. File Form 41 once for the tax year before the first payment.
3. Obtain a PAN, or collect the six rule 217 details including the EIN.
4. Test the US company against Article 24, with its cap table and US business.
5. Check that its key decisions are not taken in India, so it is not resident here.
6. Classify each payment as dividend, interest, royalty, FIS, business profit, capital gain or other income.
7. Test service fees against the make available test in Article 12(4).
8. Count parent staff days in India, and flag any work for the subsidiary under Article 5(2)(l)(ii).
9. Check the voting stock against the 10 percent test in Article 10(2)(a).
10. Compare each treaty rate with the domestic rate, including surcharge and cess.
11. Collect beneficial ownership, no PE and LOB declarations.
12. Deduct tax at the earlier of credit and payment, at the lower rate.
13. Obtain Form 146 and file Form 145 before each remittance.
14. Deposit the tax by the 7th of the next month, file Form 144 and issue Form 131.
15. Remind the US company to file its Indian return.

To have us review a US payment, structure or exit before it happens, send the agreement and the cap table through our contact page.

Frequently Asked Questions

Is the India US DTAA dividend rate 15 or 25 percent?+

Both, depending on the holding. Article 10(2)(a) caps it at 15 percent for a beneficial owner company holding at least 10 percent of the voting stock. Article 10(2)(b) caps it at 25 percent in other cases. Below 10 percent, the domestic 20 percent under section 207(1) is lower even with surcharge and cess, so the payer uses it.

What is the TDS rate on interest paid to a US parent?+

Article 11(2)(b) caps it at 15 percent, and Article 11(2)(a) at 10 percent for a bank or similar financial institution. Domestic law charges 20 percent on foreign currency loans under section 207 and 35 percent on rupee loans. So a rupee loan from a US parent bears 15 percent with Form 6166 and Form 41.

What is the royalty rate under the India US treaty?+

Article 12(2)(a) caps royalties for copyright, patents, trade marks, designs and know how at 15 percent. Rentals for industrial, commercial or scientific equipment are capped at 10 percent under Article 12(2)(b). The domestic rate is 20 percent under section 207(2), plus surcharge and cess.

Is a software subscription paid to a US company a royalty?+

Usually not. The Supreme Court ruled in Engineering Analysis Centre of Excellence Private Limited on 2 Mar 2021. It held that end user software licences are not royalty under India's treaties. Section 9(6) of the Income Tax Act, 2025 still counts software as royalty at home. So Form 6166 and Form 41 decide the result.

Does "make available" apply to managerial services?+

Article 12(4) of the US treaty covers only technical or consultancy services, and does not mention managerial services. On our reading, a purely managerial fee is business profit under Article 7. It is taxable in India only through a PE. Indian domestic law under section 9(7) does include managerial services, so the treaty claim must be documented in Form 146.

How many days can US staff work in India before a PE arises?+

For services to unrelated Indian customers, Article 5(2)(l)(i) allows up to 90 days in any 12 month period. For services to a related enterprise, such as the Indian subsidiary, Article 5(2)(l)(ii) sets no minimum period. Services that are FIS are excluded from both limbs. Construction projects have a separate 120 day limit under Article 5(2)(k).

Is the Indian subsidiary itself a PE of the US parent?+

Not by control alone. Article 5(6) says control between companies does not, by itself, make either a PE of the other. A subsidiary can still become a dependent agent PE under Article 5(4). That happens if it habitually concludes contracts, keeps and delivers stock with sales activity, or habitually secures orders wholly or almost wholly for the parent.

Does India tax a US company's gain on selling Indian shares?+

Yes. Article 13 lets each country tax capital gains under its own law. India taxes long term gains on unlisted shares at 12.5 percent under section 197. Short term gains bear 35 percent, plus surcharge and cess. The buyer withholds tax under section 393(2), serial 17, unless a Form 128 certificate says otherwise.

Can a US LLC claim the India US treaty?+

It depends on how the US taxes it. Article 4(1)(b) treats a partnership, estate or trust as resident only to the extent the US taxes its income. Many LLCs are taxed as partnerships or disregarded. The treaty text does not settle how India treats such an LLC. We review the LLC's US tax classification and its members before any claim.

What does an LOB declaration contain?+

It states that the US company meets Article 24. It names the test relied on: ownership and base erosion, active trade or business, public trading, or competent authority relief. It attaches the cap table traced to individuals where ownership is relied on. An officer signs it. Indian payers file it with Form 41 and Form 6166 in the payment file.

Does the US give credit for Indian tax on dividends?+

Often not. Section 245A of the Internal Revenue Code lets a US corporation deduct the foreign source portion of dividends from a 10 percent owned foreign corporation. Section 245A(d) then denies a credit for foreign tax on that dividend. Article 25(1) gives credit subject to US law. So the 15 percent Indian tax is often a final cost.

How long does a US company take to get Form 6166?+

The IRS Form 6166 page states no processing time. The company applies on Form 8802, which is mandatory and goes by mail or fax. From 1 Oct 2026 the business user fee is USD 230. We ask US parents to apply at the start of each year, so the certificate is ready before the first Indian payment.

Is a guarantee commission paid to a US parent covered by the treaty?+

On our reading, it falls under Article 23, other income, unless it is interest or business profit. Article 23(3) lets India tax other income arising in India. So the treaty gives no cap, and India deducts at the domestic rate.

Which forms replaced Form 10F, 15CA and 15CB?+

From 1 Apr 2026, Form 41 replaced Form 10F under rule 75 of the Income Tax Rules, 2026. Forms 145 and 146 replaced Forms 15CA and 15CB under rule 220. Form 144 replaced Form 27Q, and Form 131 replaced Form 16A. An Indian company now applies for a residence certificate in Form 42 and receives it in Form 43.

Sources

• Income Tax Department, India USA Comprehensive Agreement with Protocol (GSR 992(E), 20 Dec 1990; GSR 342(E), 12 Jul 1991), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/usa-comprehensive-agreements-1
• Internal Revenue Service, Convention between the United States and India with Protocol, exchange of notes and Memorandum of Understanding on fees for included services (15 May 1989), https://www.irs.gov/pub/irs-trty/india.pdf
• Internal Revenue Service, India tax treaty documents, https://www.irs.gov/businesses/international-businesses/india-tax-treaty-documents
• Internal Revenue Service, Form 6166, Certification of US tax residency (Form 8802 user fees from 1 Oct 2026), read 2 Oct 2026, https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency
• Income Tax Department, Section 6 of the Income Tax Act, 2025 (residence in India; sub section (10) for companies), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-6-1
• Income Tax Department, Section 9 of the Income Tax Act, 2025 (income deemed to accrue in India), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-9-1
• Income Tax Department, Section 159 of the Income Tax Act, 2025 (double taxation relief), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-159-89
• Income Tax Department, Section 207 of the Income Tax Act, 2025 (sub sections (1), (2) and (8)), read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-207-78
• Income Tax Department, Section 197 of the Income Tax Act, 2025 (long term capital gains), https://www.incometaxindia.gov.in/w/section-197-78
• Income Tax Department, Section 393 of the Income Tax Act, 2025 (tax deducted at source), https://www.incometaxindia.gov.in/w/section-393-6
• Income Tax Department, Section 397 of the Income Tax Act, 2025 (PAN and information on payments to non residents), https://www.incometaxindia.gov.in/w/section-397-6
• Income Tax Department, Rules 215, 217, 218, 219 and 220 of the Income Tax Rules, 2026, https://www.incometaxindia.gov.in/w/rule-215-1, https://www.incometaxindia.gov.in/w/rule-217-1, https://www.incometaxindia.gov.in/w/rule-218-1, https://www.incometaxindia.gov.in/w/rule-219-1, https://www.incometaxindia.gov.in/w/rule-220-1
• Income Tax Department, First Schedule to the Finance Act, 2026 (Part II rates), https://www.incometaxindia.gov.in/w/first-schedule-104
• Income Tax Department, Guidance note on Form 41, read 2 Oct 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-41
• Income Tax Department, FAQs and Guidance Notes on Forms as per Income Tax Rules, 2026 (form map), https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026
• Income Tax Department, Income Tax Act, 2025 as amended by the Finance Act, 2026, https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf
• Income Tax Department, CBDT Circular No. 07/2026 on due dates for assessment year 2026-27, 28 Sep 2026, https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-09/Circular-7-2026.pdf
• Supreme Court of India, Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax, 2 Mar 2021, https://api.sci.gov.in/supremecourt/2011/38137/38137_2011_33_1501_26629_Order_02-Mar-2021.pdf
• Office of the Law Revision Counsel, United States Code, 26 U.S.C. 245A (deduction for foreign source portion of dividends), read 2 Oct 2026, https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section245A&num=0&edition=prelim
• Office of the Law Revision Counsel, United States Code, 26 U.S.C. 902 (repealed by Pub. L. 115-97, section 14301(a)), https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section902&num=0&edition=prelim