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The Double Taxation Avoidance Agreement (“DTAA”) signed between the governments of the United States of America (“USA”) and the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, entered into force from 18 December, 1990 after a notification by both the contracting states was issued to each other informing about the completion of the procedures required under their laws for bringing into force the provisions of this DTAA.


The treaty covers the following types of taxes-

a. In the United States:

  • the Federal income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax, the personal holding company tax, and social security taxes); and
  • the exercise taxes imposed on insurance premiums paid to foreign insurers and with respect to private foundations (including exercise taxes imposed on insurance premiums paid to foreign insurers only to the extent that the risks covered by such premiums are not reinsured with a person not entitled to exemption from such taxes under this or any other tax treaty which applies to these taxes).

b. In India:

  • the income-tax including any surcharge thereon, but excluding income-tax on undistributed income of companies imposed under the Income-tax Act; and
  • the surtax.

Key takeaways

  1. Multilateral agreement between the countries: The Indian government has also signed a multilateral agreement with USA requiring the submission of country-by-country (“CbC”) reports. A CbC is a reporting format for multinational corporations that requires them to provide information on financial transactions made by the assessee’ in other countries as well shall share information about tax-avoidance transactions with USA and vice-versa.
  2. The general rule to be deemed as a resident in a state is where his permanent home is available. There are other general rules which can be used for the determination of residential status in accordance with the DTAA.
  3. Interest income is not only levied on the taxpayer by the state but also by the state in whose territory income has been raised, provided that the tax does not exceed 15% of the gross amount of interest or if 10% of the gross amount of interest is used by the taxpayer for paying a loan granted by a bank or financial institution.
  4. If dividends are paid by an Indian company to a resident of the USA, the dividends would be taxable in the USA. However, the dividends will also be taxed in India and if the owner of the dividends is a resident of the USA, then the tax on dividends charged cannot exceed the prescribed amounts.
  5. Capital gains are concerned and taxable as per the domestic laws of the state.
  6. Income raised from the immovable property, shall be taxed in the state where the immovable property is situated.
  7. USA shall allow its residents’ credit against the US tax with respect to income tax paid to India by or on behalf of such resident and vice-versa.
  8. The applicable withholding tax rates are as follows:
  • Dividend: 15%, if at least 10% of the voting stock of the company paying the dividend is held by the recipient company; and 25% in all other cases;
  • Interest: 10%, if loan is granted by a bank/similar institute including insurance company and 15% for all others cases;
  • Royalty: 10 or 15%; and
  • Fees for technical services: 10 or 15%.

Significance of DTAA

The DTAA between India and USA applies to persons who are residents of one or both of the contracting states, except as otherwise provided in the convention. The DTAA also consists of the memorandum of understanding which specifies the fee for the included services. In total, the DTAA has 31 articles. The DTAA additionally offers taxpayers, the benefit of lower withholding tax since they can pay less tax deducted at source (TDS) on their interest, royalty, or dividend incomes in India.

Double Taxation Avoidance Agreements in India and USA

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