What is DTAA? India-US Double Taxation Avoidance Agreement — complete 2026 guide

The Double Taxation Avoidance Agreement — DTAA — is the single piece of international tax machinery that decides whether an Indian resident pays one tax bill or two on US dividends, US capital gains, US salary, US royalties, or US RSU vesting income. For anyone holding a US brokerage account or a US-funded equity grant from inside India, the India-US DTAA is the framing document. Everything downstream — the W-8BEN at the broker, the 25 percent dividend withholding, Form 67 for the foreign tax credit, the Section 112 long-term capital gains treatment — flows out of treaty articles in this agreement.

This is the canonical pillar reference. It defines the treaty, walks through the articles that matter to Indian individual and corporate taxpayers, and works examples in numbers.

TL;DR

A DTAA is a bilateral treaty that prevents the same income from being taxed twice by two different countries. The India-US DTAA was signed on 12 September 1989, entered into force on 18 December 1990, and is given domestic effect in India by Section 90 of the Income Tax Act. It caps US dividend withholding at 25 percent for Indian residents, leaves capital gains on US stocks taxable only in India, and routes employment income through Article 16 with apportionment for cross-border work.

Definition and purpose: why DTAAs exist

Two countries can both have a legitimate claim to tax the same income. The United States taxes income earned within its borders regardless of the recipient's nationality — source-based taxation. India taxes the worldwide income of its residents — residence-based taxation. When an Indian tax resident receives a $500 dividend from Microsoft, both rules fire: the US taxes it at source, and India taxes it as part of the resident's worldwide income.

Without a treaty, the same $500 would be taxed twice — at the US statutory non-resident-alien rate (30 percent) and again at the Indian slab rate. The combined effective tax could approach 50 to 56 percent. That is juridical double taxation — same taxpayer, same income, two countries.

A DTAA resolves the conflict by allocating taxing rights between the two countries article by article, and by prescribing a method — exemption or credit — by which the residence country gives relief for tax paid in the source country. It does three things at once:

1. Defines residence. Article 4 determines which of the two states a person is a "resident" of for treaty purposes, with tie-breaker rules where both countries would otherwise claim residence.
2. Allocates taxing rights category by category. Each income article specifies which country gets primary taxing rights and, in many cases, at what capped rate.
3. Prescribes a relief mechanism. Article 25 explains how each country gives credit for tax paid in the other.

DTAAs also support exchange of information, mutual agreement procedures, and non-discrimination commitments. But the heart of the treaty for any investor is the article-by-article allocation.

India's DTAA framework: Section 90, 90A, 91

A signed treaty does not directly bind Indian taxpayers — it has to be brought into domestic law. Section 90 of the Income Tax Act, 1961 is the bridge.

Section 90(1) empowers the Central Government to enter into agreements with foreign governments for relief from double taxation, exchange of information, and recovery of tax.

Section 90(2) is the key provision for taxpayers: where an agreement exists, the provisions of the Income Tax Act apply only to the extent they are more beneficial to the assessee. The taxpayer picks whichever is better — domestic law or treaty. This is the legal basis for every DTAA claim in India.

Section 90(4) requires a non-resident claiming treaty relief to produce a Tax Residency Certificate (TRC) from the country of residence. Section 90(5) requires additional particulars in Form 10F where the TRC is incomplete.

Section 90A mirrors Section 90 for agreements between specified associations (used historically for the Taiwan arrangement, where formal diplomatic treaty signing was not possible).

Section 91 provides unilateral relief where India has not signed a DTAA with the source country — the lower of the foreign tax paid or the Indian tax at the average rate.

India has signed comprehensive DTAAs with around 95+ countries, including the United States, the United Kingdom, Singapore, the UAE, Mauritius, Germany, France, Australia, Japan, and Canada. Each is a separate bilateral instrument with its own rates and rules.

India-US DTAA: history and structure

The India-US DTAA was signed in New Delhi on 12 September 1989 by the Government of India and the Government of the United States of America. It entered into force on 18 December 1990 after both countries completed ratification. Operationally, it became effective:

• in India from financial year 1991-92 (i.e. assessment year 1992-93) onwards,
• in the United States from 1 January 1991 for taxable years beginning on or after that date.

The full title is the Convention 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. The treaty contains 30 articles and is supplemented by a Protocol signed on the same day that clarifies several specific points. There is also a Memorandum of Understanding on Article 12 (royalties and fees for included services) signed in 1989.

The treaty has not been substantively renegotiated since. As of 2026 it remains governed by the 1989 text plus the 1989 protocol. The 2017 OECD Multilateral Instrument (MLI), which India ratified, would have modernised many of its DTAAs — but the United States has not signed the MLI, so the India-US treaty is not covered by it. Any future amendment would require a bilateral renegotiation. (See the MLI section later in this guide.)

The articles most relevant to individual investors and employees:

Article	Subject
1	Personal scope
2	Taxes covered
3	General definitions
4	Resident (tie-breaker)
5	Permanent establishment
7	Business profits
10	Dividends
11	Interest
12	Royalties and fees for included services
13	Gains (capital gains)
14	Independent personal services
15	Dependent personal services (employment)
16	Directors' fees
17	Artistes and sportspersons
18	Pensions, social security, annuities
19	Government service
20	Students and apprentices
22	Other income
25	Relief from double taxation
26	Non-discrimination
27	Mutual agreement procedure

(Note: in the India-US treaty, employment income is in Article 16 under the official text of the agreement as published by India's Income Tax Department. Some commentaries follow the OECD model numbering where employment is Article 15. We follow the India-US treaty's own article structure throughout this guide. If you are reading the IRS-published version the article numbers may be shifted by one — always confirm against the specific article heading.)

Article 4: who is a "resident" — the tie-breaker

Treaty benefits apply only to "residents" of one of the two contracting states. Article 4(1) defines a resident of a contracting state as a person who is liable to tax there by reason of domicile, residence, citizenship, place of management, or any similar criterion. That covers ordinary Indian tax residents and US tax residents — including US citizens and green card holders, since the US taxes its citizens on worldwide income.

The complication: someone can be tax-resident in both countries under the two countries' domestic rules. An Indian engineer on a long US assignment may pass the US substantial presence test (and so be a US tax resident) while still spending enough time in India during the same year to be an Indian tax resident. Article 4(2) is the tie-breaker that resolves the conflict for treaty purposes. It applies a sequential test — each rung is checked only if the previous rung is inconclusive:

1. Permanent home. The person is deemed a resident of the state where they have a permanent home available to them.
2. Centre of vital interests. If a permanent home is available in both states, residence is in the state with which the person's personal and economic relations are closer.
3. Habitual abode. If the centre of vital interests cannot be determined, residence is in the state where the person has a habitual abode.
4. Citizenship. If habitual abode is in both states or in neither, residence is in the state of citizenship.
5. Mutual agreement. If citizenship is in both or neither, the competent authorities of the two countries settle the question by mutual agreement.

The tie-breaker does not change domestic residence — it only allocates "treaty residence." A US-citizen Indian-tax-resident remains, as a matter of US domestic law, a US tax resident filing Form 1040; but for treaty purposes the residence article assigns them to one country, and that assignment governs which set of treaty articles apply.

Income-category summary table

Article	Income type	Allocation summary
7	Business profits	Taxable only in residence state unless there is a permanent establishment (PE) in the source state
10	Dividends	Source state may tax, capped at 25% (15% for qualifying intercorporate holdings)
11	Interest	Source state may tax, generally capped at 15% (10% for bank loans)
12	Royalties and fees for included services	Source state may tax, capped at 15% (10% for equipment rental)
13	Capital gains on movable property (incl. shares)	Generally taxable only in residence state
15	Dependent personal services	Source state may tax where work is performed; exemptions for short stays
16	Directors' fees	Taxable in the state where the company is resident
17	Artistes and sportspersons	Taxable in the state where the activity is performed
18	Pensions and social security	Generally taxable only in residence state; social security may be taxable in the paying state
22	Other income	Generally taxable only in residence state

The next sections drill into the articles that come up most often for Indian investors and cross-border employees.

Article 10: dividends

Article 10 of the India-US DTAA governs dividends paid by a company resident in one contracting state to a resident of the other contracting state. The structure is:

• Article 10(1): dividends may be taxed in the residence state of the recipient (so India taxes the Indian resident).
• Article 10(2): dividends may also be taxed in the source state — but the source state's tax is capped.

The cap, for dividends paid by a US company to an Indian resident, is:

• 15 percent of the gross dividend, if the beneficial owner is a company that owns at least 10 percent of the voting stock of the company paying the dividend (the "intercorporate" rate).
• 25 percent of the gross dividend in all other cases — which is what applies to individual Indian investors holding US shares directly or through a broker.

That 25 percent treaty cap is the source of the familiar number on every Indian US-stock investor's brokerage statement. The US statutory non-resident-alien withholding rate is 30 percent; the W-8BEN filed with the broker invokes treaty residence and brings the rate down to 25 percent. See our W-8BEN form explained guide for the operational filing.

For the Indian side, the dividend then enters the resident's Indian return as foreign-sourced income, taxed at slab rates. To avoid the income being taxed twice, the Indian resident claims a foreign tax credit (FTC) under Article 25, computed and filed through Form 67. See also our operational dividend withholding and Form 67 walkthrough for the brokerage-statement to tax-return flow.

Worked example: $500 Microsoft dividend

Suppose an Indian tax resident receives a gross dividend of $500 from Microsoft Corporation on 15 March 2026. Assume USD/INR is 87 on the date of credit.

Step	Calculation	Amount
Gross dividend	$500 × 87	₹43,500
US withholding (Article 10, 25%)	$500 × 25% × 87	₹10,875
Net received in brokerage	$375 × 87	₹32,625
Indian taxable amount	Gross dividend	₹43,500
Indian tax at 30% slab	₹43,500 × 30%	₹13,050
FTC under Article 25 (lower of US tax or Indian tax on this income)	lower of ₹10,875 or ₹13,050	₹10,875
Net Indian tax payable after FTC	₹13,050 − ₹10,875	₹2,175
Total tax (US + India after FTC)	₹10,875 + ₹2,175	₹13,050

The total effective rate on the dividend ends up at the Indian slab rate — 30 percent on ₹43,500 — split between the two jurisdictions. Without the treaty, US tax would have been 30 percent and India would have layered a full 30 percent on top without any credit framework, producing a near-doubled bill.

Article 13: capital gains

Article 13 of the India-US DTAA is the article that delivers the answer most US-stock investors actually want: who taxes the capital gain on a Microsoft or Nvidia share when an Indian resident sells it?

Article 13(1) deals with gains from the alienation of immovable property — taxable in the state where the property is situated.

Article 13(2) through 13(4) cover specific categories — business assets of a permanent establishment, ships and aircraft.

Article 13(5) — the catch-all for everything else — says: gains from the alienation of any property other than the categories above shall be taxable only in the contracting state of which the alienator is a resident.

For an Indian resident selling US-listed equities, this article means the gain is taxable only in India. The United States does not impose a withholding or capital-gains tax on non-resident aliens for gains on publicly traded US stock — partly under domestic law, partly under the treaty. India therefore has sole taxing rights, and the gain enters the Indian return as:

• Long-term capital gain — if the holding period exceeds 24 months for unlisted/foreign shares — taxable under Section 112 at 12.5 percent without indexation (post-23 July 2024 rules) for assets transferred on or after that date.
• Short-term capital gain — if the holding period is 24 months or less — taxable at the resident's slab rate.

Because the US does not tax the gain, there is no foreign tax credit to claim on this income. Form 67 does not apply to the capital-gains portion of the brokerage statement; it applies to the dividend portion only.

Worked example: $5,000 Nvidia capital gain

Indian resident sells Nvidia stock on 20 March 2026, realising a gain of $5,000. Holding period is 36 months (long-term). USD/INR is 87 on the date of sale.

Step	Calculation	Amount
Long-term capital gain	$5,000 × 87	₹4,35,000
US tax withheld (Article 13(5) — none)	—	₹0
Indian LTCG tax under Section 112 (12.5%)	₹4,35,000 × 12.5%	₹54,375
Plus surcharge and cess as applicable	—	varies
Total tax	India only	₹54,375

The treaty's allocation of taxing rights to the residence state is doing all the work — the absence of a US tax bill on this transaction is not a loophole or an oversight, it is the deliberate output of Article 13(5).

Article 16: employment income and RSU vesting

For most Indian employees of US multinationals, the article that matters most is Article 16 (Dependent Personal Services) — the one that governs salary, bonus, and equity vesting.

The general rule in Article 16(1) is that salary derived by a resident of one contracting state in respect of an employment is taxable only in that residence state, unless the employment is exercised in the other state. If the work is performed in the other state, that other state may also tax the income — subject to the short-stay exemption in Article 16(2), which exempts the source-state tax where:

• the recipient is present in the other state for 183 days or less in any 12-month period, and
• the salary is paid by an employer who is not a resident of that other state, and
• the salary is not borne by a permanent establishment of the employer in that other state.

For RSU vesting, the same source-of-employment principle applies. The vesting income is sourced to where the work was performed during the vesting period — not where the employee is sitting on the date the RSU vests. This is the source rule that drives the apportionment used by both Indian and US tax authorities for cross-border RSUs.

Worked example: $50,000 RSU vest, partly worked in US

An employee was granted RSUs on 1 April 2023 with a 3-year cliff. They worked in the US for 12 months of the vesting period and in India for 24 months. The RSU vests on 1 April 2026 for a gross value of $50,000. They are an Indian tax resident on the vesting date. USD/INR is 87.

Step	Calculation	Amount
Gross vest value	$50,000 × 87	₹43,50,000
US-workdays share	12 / 36	33.33%
India-workdays share	24 / 36	66.67%
US-sourced portion	₹43,50,000 × 33.33%	₹14,50,000
India-sourced portion	₹43,50,000 × 66.67%	₹29,00,000
US federal tax on US-sourced portion (assume 22%)	₹14,50,000 × 22%	₹3,19,000
Indian tax on full ₹43,50,000 (30% slab)	₹43,50,000 × 30%	₹13,05,000
FTC on US tax (capped at Indian tax on US-sourced portion: ₹14,50,000 × 30%)	min(₹3,19,000, ₹4,35,000)	₹3,19,000
Net Indian tax payable after FTC	₹13,05,000 − ₹3,19,000	₹9,86,000

The treaty articulates the allocation; the apportionment-by-workdays is the standard mechanism both jurisdictions use to implement it. The Indian return claims the FTC under Article 25 read with Section 90 via Form 67.

(US tax rate of 22% used here as an illustrative effective rate; actual US withholding on supplemental wages for non-residents is governed by graduated rules and the specific facts of the assignment.)

Article 25: relief from double taxation

Article 25 of the India-US DTAA is the relief article — it specifies the mechanism by which each country gives credit for tax paid in the other country.

For India (Article 25(2)(a)), the relief is the credit method. Where an Indian resident derives income that, in accordance with the treaty, may be taxed in the United States, India shall allow as a deduction from its tax on that resident's income an amount equal to the income tax paid in the United States. The credit is, however, capped at the Indian tax attributable to that income — the standard "lower of" formula.

For the United States (Article 25(2)(b)), the same credit method applies in mirror image — the US gives credit for Indian tax paid on Indian-source income earned by a US resident.

Two relief methods are recognised in international tax practice — and worth distinguishing because some treaties use the other one:

1. Exemption method. The residence country simply does not tax income that the source country has the right to tax. Used by some European treaties; not the India-US method for most income categories.
2. Credit method. The residence country taxes the worldwide income but gives credit for tax paid at source — capped at the residence-country tax on that income. This is the India-US method.

The Indian implementation of Article 25 lives in Form 67 / Form 44, filed before the income tax return is processed (Rule 128 of the Income Tax Rules), supported by proof of foreign tax paid (typically Form 1042-S from the US broker, or W-2 / 1099 for employment and other income). Without Form 67, the credit is forfeited even if the substantive entitlement exists.

TRC and Form 10F mechanics

Section 90(4) requires a non-resident claiming treaty relief in India to produce a Tax Residency Certificate (TRC) issued by the resident country. A US person claiming Indian treaty relief produces a TRC from the IRS (Form 6166). An Indian resident does not file a TRC with the US directly — the US broker accepts the W-8BEN as the treaty claim mechanism — but for treaty benefits in any other source country, the Indian resident obtains a TRC from the Indian Income Tax Department.

The TRC is obtained by filing Form 10FA (application to the jurisdictional Assessing Officer) and is issued as Form 10FB. It is valid for the financial year for which it is issued and certifies the assessee's name, residential status, nationality, PAN, address, period of residential status, and a unique TRC identification number.

Form 10F is a self-declaration that supplements the TRC where it does not contain all the particulars listed in Rule 21AB. Since 2022, Form 10F must be filed electronically on the Income Tax e-filing portal — paper Form 10F is no longer accepted, and the absence of a current Form 10F can cause the source-country payer to withhold at the higher non-treaty rate.

MLI 2017: what changed, what did not

The Multilateral Instrument (MLI) — formally the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS — was concluded by the OECD in November 2016 and opened for signature in June 2017. It allows signatories to modify their bilateral tax treaties simultaneously, addressing treaty abuse (Principal Purpose Test, simplified Limitation on Benefits), artificial avoidance of PE status, hybrid mismatches, and mutual agreement procedure improvements.

India signed the MLI in June 2017 and listed most of its DTAAs as Covered Tax Agreements. For those treaties, MLI provisions automatically modify the underlying bilateral text where both treaty partners have made matching choices.

The United States has not signed the MLI. As a result, the India-US DTAA is not a Covered Tax Agreement and the MLI does not modify it. The India-US treaty continues to operate under its 1989 text. Any future change — modernising PE to capture digital-economy presence, or strengthening anti-abuse rules — requires a fresh bilateral protocol.

This is one of the most-misunderstood points in Indian DTAA practice. MLI changes (BEPS PE rules, PPT) are real for India's treaties with Singapore, the UK, Mauritius, and others — but they are not in force for the India-US treaty.

Article 5: permanent establishment

Article 5 defines a permanent establishment (PE) — a fixed place of business through which an enterprise's business is wholly or partly carried on. The concept matters because Article 7 (business profits) allows the source country to tax business profits only to the extent attributable to a PE in that country.

A PE under Article 5 includes a place of management, a branch, an office, a factory or workshop, a building site lasting more than 120 days, and the furnishing of services within a contracting state for more than 90 days in any 12-month period.

For Indian individual investors, PE is rarely directly relevant — buying US listed stock through a broker does not create a US PE. But for Indian companies setting up US subsidiaries, sending employees on long assignments, or running services contracts in the US, PE analysis is central.

Related domestic provisions Indian investors need to know

The treaty does not stand alone. It interacts with several domestic provisions:

• Section 90 / 90A / 91 — the legal basis for treaty relief in India.
• Rule 128 — operational rules for claiming FTC, including Form 67.
• Section 6 — residence rules under Indian law.
• Section 112 / 112A — the LTCG rates that apply once Article 13 allocates the gain to India. See Section 112 long-term capital gains.
• Schedule FA of the ITR — foreign asset disclosure, which applies regardless of DTAA position.
• LRS — the RBI framework controlling annual remittance abroad. See What is LRS.
• Form 67 / Form 44 — the FTC claim form. See Form 67 to Form 44 transition.
• W-8BEN — the US-side treaty claim at the broker. See W-8BEN explained.

For operational mechanics of dividend withholding and FTC, see the dividend withholding and Form 67 page and the broader US investing hub.

Common misconceptions

"The DTAA lets me avoid paying tax in both countries." No. The DTAA prevents double taxation by allocating the tax between the two countries — it does not eliminate the tax altogether. An Indian resident receiving a US dividend still pays the Indian slab rate on it; the treaty simply ensures the US withholding is credited rather than added on top.

"I am an Indian resident, so I only pay tax in India." Not for source-state-permitted income types. Dividends, interest, royalties, and source-state employment income can be taxed at source — the treaty only caps the rate. The relief comes through the FTC in the residence return.

"The MLI updated the India-US treaty." It did not. The US has not signed the MLI; the India-US DTAA remains governed by its 1989 text and 1989 protocol.

"DTAA benefits apply automatically." They do not. The Indian resident must hold a current W-8BEN at the US broker for source-side benefits, and must file Form 67 (now Form 44 for AY 2027-28 onwards) with a TRC and proof of foreign tax to claim the residence-side FTC. Procedural failure forfeits the treaty position.

"Capital gains on US stocks are taxed by the US." They are not, for Indian resident individuals selling listed US shares. Article 13(5) gives India sole taxing rights, and the US does not impose tax on non-resident-alien gains from publicly traded US stock.

Conclusion

The India-US DTAA is the single document that turns "the US wants 30 percent and India wants 30 percent" into a coherent framework an Indian resident can actually follow. Understanding which article governs which income, what the treaty cap is at source, and how Article 25 routes credit back through the Indian return is the foundation for anyone holding US stock, receiving US dividends, vesting RSUs from a US employer, or being seconded between the two countries.

Every operational step downstream — W-8BEN, Form 67, Schedule FA, the LRS limit, the Section 112 LTCG calculation — derives from a clause in this treaty. The treaty is over thirty-five years old, has not been substantively renegotiated, and is not covered by the MLI. For the foreseeable future, the 1989 text remains the law of the land for India-US cross-border individual taxation.