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No. A Double Taxation Avoidance Agreement (DTAA) does not automatically reduce or eliminate Indian tax deducted at source (TDS) merely because the recipient lives abroad or holds a foreign Tax Residency Certificate (TRC).
But the opposite assumption is also wrong. For specified payment categories, Indian withholding law recognises an applicable treaty rate as part of the rates in force. An eligible recipient may therefore obtain treaty treatment at the withholding stage if the applicable conditions and prescribed information are satisfied. An Assessing Officer’s certificate is not a universal prerequisite.
The payer must still determine the payment’s Indian tax character, the treaty provision and its conditions, the governing withholding entry, and whether a formal determination or certificate is relevant. The Income Tax Department’s guidance about Form 129 creates a further procedural qualification, explained below.
A treaty decides the extent of India’s taxing rights. Withholding law decides what the payer must deduct, when, and on what evidence.
What can a DTAA change in Indian taxation?
A DTAA allocates taxing rights between two countries and may provide relief from double taxation. Depending on the income and the treaty, it may restrict India’s right to tax, limit the Indian rate, leave some taxing rights with both countries, or provide a method of double-taxation relief.
There is no single “NRI treaty rate”. Interest, dividends, royalties, business profits and income from immovable property can be governed by different treaty articles. A person’s overseas address alone does not establish treaty residence or entitlement.
For periods governed by the Income-tax Act, 1961, section 90(2), where applicable, allowed the more beneficial provisions of an applicable agreement. For periods governed by the Income-tax Act, 2025 from 1 April 2026, the corresponding beneficial-treaty principle is in section 159(4), subject to the Act’s qualifications. See the Income Tax Department’s section 159 text.
The treaty in force must be read with its protocol, any applicable Multilateral Instrument modification, and relevant beneficial-ownership, limitation-of-benefits, principal-purpose or other anti-abuse conditions. These do not operate identically across treaties or kinds of income.
A valid TRC is important. It does not, by itself, decide income character, beneficial ownership or whether every other treaty condition is met.
Why can TDS arise even where a treaty offers relief?
TDS collects tax through the payer at the prescribed credit or payment event. The recipient may in the end have a treaty-based tax position, but the payer has its own statutory deduction obligation.
Take an Indian bank crediting interest to an NRO account. The bank may know the account holder’s overseas address and account status. Neither is enough to determine the applicable treaty interest article, its conditions or the proper withholding position. The bank must consider the specific income and the relevant documentation.
The same distinction applies to an Indian tenant paying rent to a non-resident landlord or an Indian business paying a foreign service provider. An invoice or the recipient’s statement of treaty residence cannot replace the legal classification of the payment.
What does “chargeable to tax” mean for withholding?
Section 195(1) of the Income-tax Act, 1961 linked the general withholding obligation on qualifying non-resident payments to sums chargeable under that Act. In GE India Technology Centre Pvt. Ltd. v. CIT (Supreme Court, 9 September 2010), the Court rejected a blanket approach under which every remittance to a non-resident automatically required deduction regardless of chargeability.
Under the 2025 Act, section 393(2), Table serial number 17, contains the general non-resident category for specified interest and other sums chargeable under the Act. Other payments have separate entries and conditions. The reasoning of GE India remains relevant when a withholding provision is linked to chargeability, but its application to a particular 2025 Act entry must be assessed from that entry’s text and subsequent authority. See the 2025 Act section 393.
When can a treaty rate affect TDS at source?
Where the statute recognises the treaty rate
For specified non-resident withholding categories, section 2(90)(c) of the Income-tax Act, 2025 includes the rate in an applicable agreement within the definition of rates in force. These categories include section 393(2), Table serial number 17. The earlier Act had a comparable rates-in-force mechanism in section 2(37A)(iii). See section 2 of the 2025 Act.
This is the statutory basis on which treaty treatment may affect deduction at source, rather than being available only through a subsequent Indian tax return. It does not permit an unsupported selection of a lower rate for every payment. The payment category, treaty conditions, prescribed documents and any applicable higher-rate rule must be checked.
The Income Tax Department’s Form 129 FAQ says that Form 129 is not mandatory, but also describes it as required where a payer wishes to deduct below the rates prescribed by the 2025 Act. That wording does not expressly reconcile the treaty rate already included within “rates in force” by section 2(90)(c) with the separate chargeable-proportion procedure in section 395(2).
Accordingly, do not assume either that every treaty-rate deduction needs Form 129 or that a payer may always apply a lower rate unilaterally. The applicable statutory entry and current procedural position must be evaluated together.
Where the income is not chargeable in India
For a payment governed by a chargeability-based withholding provision, an established conclusion that the sum is not chargeable in India under the domestic law read with an applicable treaty may mean no deduction is required under that provision. This is different from applying a reduced rate to income that remains chargeable.
A payment described as “services” cannot be assumed non-chargeable from its label alone. Its actual scope, location and character, and the applicable treaty conditions, matter. If chargeability is uncertain or only part of a composite sum may be chargeable, the payer should consider the appropriate statutory determination route instead of relying on an unsupported conclusion.
Where a certificate or determination is sought
A lower or nil deduction certificate and a payer’s chargeable-proportion determination serve different purposes. Neither is the same as the automatic operation of a treaty provision.
Which lower or nil TDS procedure applies from 1 April 2026?
| Question | Recipient’s certificate | Payer’s chargeable-proportion determination |
|---|---|---|
| Application by | Recipient / payee | Person responsible for payment |
| 2025 Act provision | Section 395(1) | Section 395(2) |
| 2026 Rules | Rule 213 | Rule 214 |
| Form | Form 128 | Form 129 |
| Function | Seek lower or nil deduction based on applicable statutory conditions | Determine the appropriate chargeable proportion of a qualifying sum |
| Principal scope | Covered income or sum, subject to certificate terms | Section 393(2), Table serial number 17 |
Form 128. Under section 395(1) and Rule 213, the recipient may apply for a certificate supporting lower or nil deduction. The Department describes Form 128 as an optional application when such a certificate is sought. A certificate, if issued, must be followed within its specified conditions and validity. Section 395(6), inserted with effect from 1 April 2026, additionally provides for an application before a prescribed income-tax authority subject to prescribed conditions. This does not itself establish that a particular electronic alternative is operational for every applicant. See Rule 213 and the Form 128 FAQ.
Form 129. Under section 395(2) and Rule 214, the payer can seek a determination of the appropriate proportion of a qualifying sum chargeable to tax. Rule 214 expressly requires the Assessing Officer to consider the Act read with the relevant DTAA, where applicable. The resulting determination applies to the specified payment and period. See Rule 214.
For relevant earlier periods, the corresponding procedures arose under sections 195(2) and 197 of the Income-tax Act, 1961 and the applicable 1962 Rules. A Form 129 application must not be confused with a recipient’s Form 128 application.
Is a TRC or Form 41 enough to obtain treaty TDS treatment?
No. These are important treaty-claim documents, but documentary compliance and substantive treaty eligibility are separate tests.
Under section 159(8) of the Income-tax Act, 2025, a non-resident claiming treaty relief must obtain a certificate of residence from the government of the relevant country or territory and furnish the prescribed further documents and information.
Rule 75 of the Income-tax Rules, 2026 prescribes the additional information through Form 41, the successor to Form 10F under the earlier regime. The Income Tax Department’s Form 41 FAQ states that Form 41 is mandatory for a non-resident claiming DTAA benefits, including where treaty relief is claimed at the TDS stage. It states that filing is once per tax year and requires the relevant TRC and identifying information.
The TRC and Form 41 do not independently prove beneficial ownership, that a particular payment falls under the desired treaty article, absence of a permanent establishment where material, or satisfaction of applicable anti-abuse conditions.
What if the non-resident has no Indian PAN?
This is a separate withholding issue. Section 397(2) of the 2025 Act contains a higher-deduction mechanism, while Rule 217 specifies exceptions for qualifying non-resident payments where the prescribed identification, foreign residence and tax-identification details are provided. The rule is not an unconditional exemption for every income category. See Rule 217.
Therefore, neither “no PAN always means 20% TDS” nor “a TRC removes all PAN consequences” is a reliable general conclusion.
Why can the same NRI face different withholding treatment for interest and rent?
Suppose a person is treaty-resident in a country that has a DTAA with India. That person receives interest on an Indian NRO deposit and rent from a residential flat in Nagpur.
| Factor | Indian NRO deposit interest | Indian residential rent |
|---|---|---|
| Nature | Interest | Income from immovable property |
| Treaty article to inspect | Relevant interest provision | Relevant immovable-property provision |
| Payer | Bank | Tenant or person responsible for paying |
| Evidence | Account, interest, residence and treaty records | Lease, ownership, payment, residence and treaty records |
| Indian withholding | Applicable interest-related withholding entry and permissible treaty treatment | Applicable non-resident withholding entry and treaty treatment |
The same foreign residence and TRC do not make the interest and rental-income treaty rules identical. A bank’s NRO classification does not decide a tenant’s TDS obligation. Nor does a treaty rate for interest automatically apply to rent.
No numerical treaty rate is used here because the applicable country treaty, protocol and modifications would have to be selected and verified first.
What if Indian TDS exceeds the final Indian tax liability?
Tax already deducted does not necessarily represent the recipient’s final liability in India. The final amount depends on domestic tax law, any substantiated treaty benefit, allowable credits and the relevant period.
For relevant earlier periods, section 237 of the Income-tax Act, 1961 provided the general excess-tax refund entitlement. Section 431 of the Income-tax Act, 2025 contains the corresponding refund framework. Subject to applicable conditions, the ordinary recipient route may involve filing the relevant Indian income-tax return, claiming the proper TDS credit and substantiating the final treatment. Separate statutory routes can apply to particular payer-funded tax situations.
Keep three outcomes distinct: tax deducted by the payer, final tax legally chargeable in India, and tax or credit consequences in the recipient’s country of residence.
Indian TDS does not automatically establish a foreign tax credit in the United States, United Kingdom or any other country. Foreign-law eligibility and reporting require review under that country’s rules by an appropriately qualified professional there.
What changed on 1 April 2026?
| Subject | Income-tax Act, 1961 / 1962 Rules for the relevant earlier period | Income-tax Act, 2025 / 2026 Rules from 1 April 2026 |
|---|---|---|
| Treaty benefit | Section 90/90A as applicable | Section 159 |
| General non-resident deduction | Section 195 | Section 393(2), Table serial 17 |
| Recipient lower/nil certificate | Section 197; Form 13 | Section 395(1); Form 128 |
| Payer’s chargeable-proportion application | Section 195(2); corresponding prescribed procedure | Section 395(2); Form 129 |
| Additional treaty information | Rule 21AB; Form 10F | Rule 75; Form 41 |
| Outward remittance reporting | Forms 15CA and 15CB | Forms 145 and 146, where prescribed |
These are corresponding references, not a statement that the provisions are identical. The precise credit, payment and remittance dates, the applicable withholding category and the repeal-and-savings provisions matter.
For example, income accruing in February 2026 and an outward remittance in April 2026 may involve different substantive income-tax and remittance-reporting periods. Section 536 of the 2025 Act addresses repeal and savings. A remittance date by itself does not reset the tax year in which income accrued.
Does every remittance require Forms 145 and 146?
No. Remittance information is a distinct compliance requirement and is not itself proof that a payment is taxable. Rule 220 provides different parts of Form 145 depending on chargeability, amount and certificates or orders, and includes exclusions. Form 146 is the accountant’s certificate used where the rule requires it. An NRI receiving an Indian payment is not, by that fact alone, making an outward remittance. See Rule 220.
What records matter before a treaty withholding claim is made?
The reader should be able to establish the recipient’s relevant treaty residence and period; TRC and Form 41 or predecessor documentation; the precise income source and character; the applicable treaty article and modifications; relevant beneficial-ownership and anti-abuse facts; PAN or the applicable documentary exception; the payer’s withholding category; and any certificate, order or TDS record.
A bank may have accurate overseas KYC but insufficient treaty evidence. A payer may hold a valid TRC yet apply the wrong income article. A certificate may cover a different recipient, payment or period. These are not interchangeable errors.
First establish the Indian income-tax position. Then test the relevant treaty. Only then determine the applicable withholding and documentary route. The treaty can change the amount India may tax. It does not remove the need to identify what the payer is required to deduct.
Sources and legal period
The statutory basis is the Income-tax Act, 1961 and Income-tax Rules, 1962 for the applicable earlier period, and the Income-tax Act, 2025 with Income-tax Rules, 2026 for relevant events on or after 1 April 2026, subject to transition provisions. Principal current Indian authorities are sections 2(90), 159, 393, 395, 397, 431 and 536 of the 2025 Act and Rules 75, 213, 214, 217 and 220 of the 2026 Rules. Administrative FAQs clarify electronic forms but do not replace statutory wording. The earlier chargeability principle is discussed in GE India Technology Centre Pvt. Ltd. v. CIT (Supreme Court, 9 September 2010).
This article addresses Indian taxation and withholding. It does not determine any individual’s treaty entitlement or the law, tax liability or foreign tax credit in the country where the individual resides.
Sources and review
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