Key Takeaways
- The India-USA DTAA was signed in 1989 and amended by protocol in 2000. It eliminates double taxation on cross-border income between India and the United States.
- Treaty withholding rates cap dividends at 15% (25% for 10%+ shareholders), interest at 15%, royalties at 10-15% depending on the type of property, and fees for included services (FTS) at 10%.
- Capital gains (Article 13) carry no treaty cap. Each country taxes under its domestic law, so the effective rate depends on the holding period and asset type.
- To claim benefits you need a Tax Residency Certificate (TRC), must file Form 67 in India before the ITR due date, and submit Form W-8BEN to the US withholding agent.
- The treaty has no Limitation of Benefits (LOB) clause, which simplifies eligibility compared to many other US tax treaties.
If you are an Indian resident earning dividends from a US company, an H-1B professional with Indian rental income, or an Indian freelancer billing US clients, you are exposed to taxation in both countries on the same income. The India-USA Double Taxation Avoidance Agreement is the instrument that prevents you from paying tax twice.
This guide covers the treaty article by article, walks through the rates, and explains the exact documentation you need to claim relief. It assumes FY 2025-26 (AY 2026-27) and references the Income Tax Act 2025, which preserves the DTAA framework intact.
Looking for expert help with India-USA DTAA benefits, Foreign Tax Credit and Form 67 filing services? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
What is the India-USA DTAA? The India-USA Double Taxation Avoidance Agreement is a bilateral tax treaty between the Republic of India and the United States of America, signed on 12 September 1989 and amended by a protocol dated 2000. Its purpose is to allocate taxing rights over cross-border income, set maximum withholding rates at source, and provide a mechanism for relief (Foreign Tax Credit) so that neither country's residents pay full tax in both jurisdictions on the same income. The legal basis in India is Section 90 of the Income Tax Act, which gives treaty provisions overriding effect when they are more beneficial to the taxpayer than domestic law.
Background: Treaty History and Legal Basis
India and the USA signed the DTAA on 12 September 1989, and the treaty entered into force on 18 December 1990. A protocol signed in 2000 amended several articles, most notably refining the definition of Fees for Included Services (FTS) and updating the mutual agreement provisions.
Under Indian domestic law, Section 90 of the Income Tax Act allows the Central Government to enter into agreements with foreign countries for the avoidance of double taxation. Section 90(2) provides a critical safeguard: where the provisions of the DTAA are more beneficial to the assessee than the provisions of the Income Tax Act, the DTAA provisions prevail. This means the taxpayer always gets the lower of the treaty rate or the domestic rate.
The Income Tax Act 2025 (effective from AY 2026-27) retains the DTAA framework without alteration. All treaty rates and claiming procedures described here continue to apply.
Article 4: Residency and Tie-Breaker Rules
A person can be a tax resident of both India and the US simultaneously under each country's domestic law. Article 4 resolves this with a tie-breaker sequence:
- Permanent home. The individual is resident where they have a permanent home available. If they have a permanent home in both countries, move to the next test.
- Centre of vital interests. Residence goes to the country where personal and economic relations are closer (family, main business, social ties).
- Habitual abode. If vital interests cannot be determined, the country where the person stays more often prevails.
- Nationality. If habitual abode is equal or indeterminate, the person is treated as a resident of the country whose nationality they hold.
- Mutual Agreement. If none of the above resolves the question, the competent authorities of both countries settle it by mutual agreement.
For most H-1B professionals living in the US with family, the tie-breaker assigns US residency. For returning NRIs who have shifted their permanent home back to India, the tie-breaker assigns Indian residency. Getting this classification right is the first step, because it determines which country is the "residence" country (which taxes worldwide income) and which is the "source" country (which taxes only income arising within its borders).
Who Benefits from the India-USA DTAA
The treaty applies to persons who are residents of one or both contracting states. In practical terms, four groups use this treaty most frequently.
1. H-1B and L-1 professionals working in the US with Indian income. These individuals are often US tax residents who continue to earn rental income, bank interest, or capital gains in India. The DTAA ensures Indian TDS on such income can be credited against their US tax liability, and vice versa.
2. NRIs with US-sourced income. Indian residents who hold US stocks, receive dividends from US companies, or earn interest from US bank accounts face 30% default US withholding. The treaty reduces this to 15% (for dividends and interest), and the US tax paid is creditable in India via Form 67.
3. Indian freelancers and IT companies billing US clients. Payments for software development, consulting, and technical services from US companies to Indian providers may attract US withholding. The FTS article (Article 12) caps this at 10% if the "make available" test is satisfied.
4. Indian companies receiving royalties or dividends from US subsidiaries. Cross-border royalty payments for intellectual property, brand licensing, or technology transfer benefit from the 10-15% treaty cap instead of the 30% US default.
If you fall into any of these categories, you should also read our detailed NRI income tax guide for the residential status rules and the Section 195 TDS guide for withholding obligations when paying non-residents.
Treaty Withholding Rates at a Glance
The table below compares the default domestic withholding rate with the treaty rate under the India-USA DTAA.
| Income Type | Indian Domestic Rate | US Domestic Rate | Treaty Rate | Treaty Article |
|---|---|---|---|---|
| Dividends (general) | 20% (Section 115A) | 30% | 15% | Article 10 |
| Dividends (10%+ voting stock) | 20% | 30% | 25% | Article 10 |
| Interest (general) | 20% (Section 115A) | 30% | 15% | Article 11 |
| Interest (govt/RBI/specified institutions) | 20% | 30% | Exempt | Article 11 |
| Royalties (copyrights, software, literary/artistic/scientific works) | 20% (Section 115A) | 30% | 15% | Article 12 |
| Royalties (patents, equipment) | 20% | 30% | 10% | Article 12 |
| Fees for Included Services (FTS) | 20% | 30% | 10% | Article 12 |
| Capital Gains | Varies (STCG/LTCG rates) | Varies | No treaty cap | Article 13 |
| Salary / Employment Income | Slab rates | Slab rates | Taxed in country of employment | Article 16 |
Tax Rate Chart
Key Treaty Rates: India-USA DTAA
Maximum withholding at source under the treaty
Dividends (general)
Dividends (10%+ stock)
Interest
Royalties (copyright/software)
Royalties (patents/equipment)
FTS (make available)
Source: India-USA DTAA, Articles 10-12
Article-by-Article Breakdown
Article 10: Dividends
Article 10 allows the country of residence to tax dividends. The source country (where the paying company is incorporated) may also tax, but the rate is capped.
- 15% of the gross dividend if the beneficial owner is a resident of the other country.
- 25% if the beneficial owner is a company that holds directly at least 10% of the voting stock of the company paying the dividend.
The higher rate for substantial shareholdings is unusual. Most DTAAs give a lower rate for holding companies. The India-USA treaty reverses this logic, so parent-subsidiary dividend flows carry a heavier treaty rate.
Practical example. An Indian resident holds shares in Apple Inc. through a US brokerage. Apple pays a quarterly dividend of $500. Without the treaty, the US withholds 30% ($150). With the treaty, the withholding is capped at 15% ($75). The Indian resident claims the $75 US tax as a Foreign Tax Credit in India.
Article 11: Interest
Interest arising in one country and paid to a resident of the other may be taxed in both, but the source-country withholding is limited to 15% of the gross interest.
A significant exemption applies: interest paid to the Government of the other country, its political subdivision, the Reserve Bank of India, the US Federal Reserve, or any financial institution wholly owned by the respective government is exempt from source-country tax.
This exemption is particularly relevant for sovereign wealth fund investments and RBI's holdings of US Treasury securities.
Practical example. An Indian resident holds a US high-yield savings account earning $2,000 interest in FY 2025-26. Without the treaty, the US bank withholds 30% ($600). With the DTAA and a valid W-8BEN on file, withholding is 15% ($300). The $300 is then claimed as FTC in India through Form 67.
Note that interest on US Treasury bonds and certain municipal bonds may have different treatment under the US Internal Revenue Code. The treaty rate of 15% applies to interest "arising in" the US, which broadly covers bank interest, corporate bond interest, and similar instruments.
Article 12: Royalties and Fees for Included Services
This is the most heavily litigated article in the India-USA DTAA. It covers two streams.
Royalties are split into two sub-categories with different rates:
- 15% on royalties for the use of, or the right to use, copyrights of literary, artistic, or scientific works, including computer software and cinematographic films.
- 10% on royalties for the use of patents, trade marks, designs, models, plans, secret formulas or processes, or industrial, commercial, or scientific equipment.
Fees for Included Services (FTS) are taxed at 10% of the gross amount. The India-USA treaty uses the phrase "fees for included services" rather than the more common "fees for technical services." The critical distinction is the "make available" test: a payment qualifies as FTS only if the service renders technical knowledge, experience, skill, know-how, or processes available to the payer such that the payer can apply them independently in future. Routine services that do not transfer know-how fall outside Article 12.
The "make available" clause is the single most disputed provision in the India-USA DTAA. If your payment is for services that do not transfer lasting technical knowledge to the recipient (for example, back-office processing, call centre operations, or standard software support), the payment may not be FTS under the treaty at all, leaving it taxable only as business profits under Article 7 (which requires a permanent establishment in the source country for taxation). Correct characterisation of the payment saves significant tax. For a deeper analysis of Section 115A and domestic rates on royalty/FTS, see our Section 115A guide.
Article 13: Capital Gains
Unlike most provisions, Article 13 of the India-USA DTAA does not set a reduced rate. Each contracting state may tax capital gains under its own domestic law. This means:
- An Indian resident selling US stocks pays US capital gains tax under the US Internal Revenue Code and Indian capital gains tax under the Income Tax Act. Relief comes through the Foreign Tax Credit mechanism (Article 25), not through a rate cap.
- A US resident selling Indian property pays Indian capital gains tax (STCG at 20% or LTCG at 12.5% for property held over 24 months) and credits this against US tax.
The absence of a special treaty rate makes the FTC computation critical for capital gains transactions.
Article 16: Employment Income (Dependent Personal Services)
Employment income is generally taxable only in the country where the services are performed. An H-1B professional working in the US pays US tax on the salary. This salary is not taxable in India (assuming NRI status), so no double taxation arises on the salary itself.
The exception is short-stay employment: if an Indian employee is present in the US for fewer than 183 days in a fiscal year, the salary is paid by an Indian employer, and the cost is not borne by a US permanent establishment, the salary remains taxable only in India. This rule protects short-term business travellers from US withholding.
Article 25: Relief from Double Taxation
Article 25 is the mechanical provision that makes the treaty work. It provides that:
- India shall allow a resident of India a credit against Indian income tax for the amount of tax paid in the United States on income that is taxable in both countries. The credit shall not exceed the proportion of Indian tax that the US-source income bears to total income.
- The United States shall allow a US citizen or resident a credit against US federal income tax for income tax paid to India.
The Indian implementation of this credit is through Section 90 read with Rule 128 of the Income Tax Rules. The taxpayer must file Form 67 before or along with the return of income.
How to Claim DTAA Benefits: Step-by-Step
Step-by-Step Guide
Claiming DTAA Relief in India
Steps for an Indian resident claiming Foreign Tax Credit on US-source income
Obtain Tax Residency Certificate
Apply to the Assessing Officer in India (Form 10FA) for a TRC confirming Indian residency. Processing takes 7-15 days. The TRC is mandatory under Section 90(4).
Form 10FACollect US tax documentation
Gather US Form 1042-S (for dividends, interest, royalties) or US tax return transcript showing tax paid. Convert amounts to INR at the SBI TT buying rate on the date of credit/payment.
Form 1042-SCompute Foreign Tax Credit
Under Rule 128, FTC is the lower of: (a) tax paid in the US on the doubly-taxed income, or (b) Indian tax attributable to that income. Compute country-by-country and income-head-by-head.
Rule 128File Form 67 on the IT portal
Upload Form 67 on the income tax e-filing portal before or along with the ITR. Attach the TRC, proof of foreign tax paid, and the FTC computation statement.
Form 67File ITR with Schedule FSI and TR
In ITR-2 or ITR-3, fill Schedule FSI (Foreign Source Income) and Schedule TR (Tax Relief). The FTC amount flows into the tax computation and reduces your final liability.
ITR-2/3Source: Section 90, Rule 128, Income Tax Act
Claiming Treaty Benefits in the US (for Indian residents receiving US income)
If you are an Indian resident receiving dividends or interest from the US, you need to submit Form W-8BEN to the US withholding agent (typically your US brokerage or bank) to claim the reduced treaty rate at source. Without W-8BEN, the US withholds at the statutory 30%.
Key fields on Form W-8BEN:
- Line 9: Country of residence for tax treaty purposes: India
- Line 10: Article and paragraph of the treaty: e.g., Article 10(2)(a) for dividends
- Line 10: Rate of withholding: 15%
The form is valid for three calendar years from the date of signing and must be renewed.
FTC Computation: A Worked Example
Facts. Ravi, an Indian resident (salaried, total Indian income Rs 18,00,000), holds US stocks through a US brokerage. In FY 2025-26:
- US dividends received: $4,000 (Rs 3,36,000 at Rs 84/USD)
- US tax withheld at 15% (treaty rate via W-8BEN): $600 (Rs 50,400)
- Indian tax on total income including US dividends: Rs 2,70,000 (computed under new tax regime)
FTC computation under Rule 128:
| Step | Calculation | Amount |
|---|---|---|
| A. Tax paid in the US on doubly-taxed income | $600 converted at SBI TT buying rate | Rs 50,400 |
| B. Indian tax attributable to US income | (Rs 3,36,000 / Rs 18,00,000) x Rs 2,70,000 | Rs 50,400 |
| C. FTC allowed (lower of A or B) | Lower of Rs 50,400 and Rs 50,400 | Rs 50,400 |
| D. Net Indian tax payable | Rs 2,70,000 minus Rs 50,400 | Rs 2,19,600 |
Ravi effectively pays no extra Indian tax on the US dividend. The US treaty-rate withholding is fully absorbed as FTC.
If Ravi had not filed W-8BEN and the US withheld 30% ($1,200 / Rs 1,00,800), the Indian FTC would still be limited to Rs 50,400 (the Indian tax attributable to that income). The excess $600 US tax would be a permanent loss. This is why claiming the treaty rate at source is just as important as claiming FTC in India.
Common Mistakes When Claiming India-USA DTAA Benefits
1. Not filing Form 67 before the ITR due date. Rule 128(9) requires Form 67 to be filed before or along with the return of income. Filing ITR first and Form 67 later can result in denial of FTC. The CBDT has relaxed this in some circulars, but the safest approach is to file Form 67 first.
2. Using the wrong exchange rate. FTC must be computed using the SBI Telegraphic Transfer buying rate on the date tax was deducted or paid, not the date of filing. Using a different rate creates a mismatch that triggers processing errors.
3. Forgetting to fill Schedule FSI and Schedule TR. Even if Form 67 is filed, the ITR must contain the foreign income in Schedule FSI and the credit claim in Schedule TR. Missing either schedule means the CPC will not process the credit.
4. Not obtaining a TRC. Section 90(4) makes the TRC a mandatory precondition for treaty benefits. Without a valid TRC, the Assessing Officer can deny DTAA relief entirely, even if the taxpayer is genuinely resident in India.
5. Mischaracterising FTS payments. The "make available" test under Article 12 is specific to the India-USA treaty. Treating all technical service payments as FTS when they do not transfer lasting know-how inflates the withholding burden. Correct characterisation can mean the difference between 10% tax and 0% tax (if no PE exists and the payment is pure business profit under Article 7).
6. Ignoring state-level taxes. The DTAA covers federal income tax. US state taxes (California, New York, etc.) are not covered by the treaty. However, Indian FTC rules allow credit for all income taxes, including state taxes, as long as the taxpayer can document the payment. Include state tax paid in your Form 67 computation.
7. Not renewing W-8BEN. The form expires after three years. If it lapses, the US brokerage reverts to 30% withholding without notice. Set a calendar reminder to renew before expiry.
No Limitation of Benefits (LOB) Clause
Unlike the India-Singapore, India-Mauritius, or US-UK treaties, the India-USA DTAA contains no Limitation of Benefits clause. An LOB clause restricts treaty benefits to entities that meet certain ownership, activity, or listing tests, primarily to prevent treaty shopping.
The absence of LOB in the India-USA DTAA means that any bona fide resident of India or the US can claim benefits without proving additional substance tests. This simplifies claims considerably, but it also means the treaty is occasionally scrutinised for potential misuse, so maintaining proper documentation (TRC, Form 10F for non-residents, PE declarations) remains essential.
How Tax Garden Helps
Cross-border taxation between India and the US involves the intersection of two complex tax codes and a 37-year-old treaty. Getting the characterisation right (royalty vs. FTS vs. business profit), computing FTC correctly under Rule 128, and filing Form 67 with the right supporting documents is detail-intensive work.
Tax Garden's cross-border compliance team handles this end to end.
- TRC application through Form 10FA with your jurisdictional Assessing Officer.
- FTC computation under Rule 128 with correct SBI TT buying rate conversion, country-by-country and head-by-head.
- Form 67 filing on the income tax portal with all supporting documents: TRC, US Form 1042-S, tax return transcripts, and bank statements.
- ITR filing with correctly populated Schedule FSI and Schedule TR to ensure CPC processes the credit without manual intervention.
- TDS advisory for Indian companies making payments to US entities, including Section 195 withholding compliance at the correct treaty rate.
Explore our pricing plans or speak with our team to get started.
Frequently Asked Questions
Does the India-USA DTAA apply to NRIs or only to Indian residents?
The treaty applies to persons who are residents of either India or the United States (Article 1). An NRI who is a US tax resident can claim treaty benefits in India, and an Indian resident can claim benefits in the US. Residential status under Article 4 of the treaty determines which country's resident you are for treaty purposes.
What is the difference between FTS and royalty under the India-USA DTAA?
Royalties cover payments for the use of intellectual property (copyrights, patents, trademarks, equipment). FTS (Fees for Included Services) covers payments for technical or consultancy services that 'make available' technical knowledge to the payer. The key test is whether the payer can independently apply the know-how after the service ends. If yes, it is FTS at 10%. If no, it is likely business profit under Article 7, not taxable without a PE.
Can I claim FTC for US state taxes (California, New York) under the DTAA?
The DTAA itself covers only federal income tax. However, Indian FTC rules under Rule 128 allow credit for income taxes paid in a foreign country, which includes state-level income taxes. Include the state tax amount in your Form 67 computation with documentary proof of payment.
What happens if I miss the Form 67 deadline?
Under Rule 128(9), Form 67 should be filed before or along with the ITR. Filing it late may result in denial of FTC by the CPC. The CBDT has issued circulars allowing belated Form 67 in some situations, but the safest approach is to file Form 67 before submitting your ITR.
Is there a minimum income threshold to claim DTAA benefits?
No. The treaty applies regardless of the quantum of income. Even if your US dividend income is Rs 10,000, you can claim FTC for the US tax withheld. The documentation requirements (TRC, Form 67, Schedule FSI/TR) remain the same regardless of amount.
How does the India-USA DTAA interact with the Income Tax Act 2025?
The Income Tax Act 2025 (effective AY 2026-27) preserves the DTAA framework. Section 90 continues to govern treaty relief, Rule 128 continues to govern FTC computation, and Form 67 remains the prescribed form. Treaty rates and provisions are unchanged.
Sources. This guide is based on the text of the Agreement between the Government of the Republic of India and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed 12 September 1989 and amended by protocol (2000), as published on incometaxindia.gov.in under the DTAA section. Domestic law references are to Sections 90, 90A, 91, and 115A of the Income Tax Act 1961 (now re-enacted under the Income Tax Act 2025), Rule 128 of the Income Tax Rules 1962, and CBDT Circular No. 25/2017 on belated Form 67 filing. US-side references are to the Internal Revenue Code Sections 871, 881, and 894, and IRS Form W-8BEN instructions. Treaty text and notifications are available at incometaxindia.gov.in/pages/international-taxation and irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.