Claiming DTAA Relief Under Section 90: Foreign Tax Credit, Treaty Rates, TRC and Form 10F

A Double Taxation Avoidance Agreement is one of the most misread documents in an NRI's file. Sections 90 and 90A of the Income-tax Act 1961 empower the Central Government to enter into these agreements, and where India has one with the country you live in, either the Act or the treaty applies, whichever is more beneficial to the assessee. That single phrase is the whole of the relief, and it is narrower than most readers assume.

Relief is delivered in one of two ways. Either you get a foreign tax credit, where India follows the ordinary-credit method so the credit is the lower of the foreign tax paid or the Indian tax on that income, claimed under Rule 128 with Form 67. Or you get a lower treaty rate on interest, royalty, fees for technical services and dividends. It is not a blanket exemption of income.

Neither route is granted by default. A non-resident must furnish a Tax Residency Certificate and Form 10F to claim treaty benefits. Without both documents in the payer's hands before payment, the deductor falls back to the rate in the Act and the difference becomes a refund claim.

FEMA / DTAA Position

Section 90(1) lets the Central Government enter into an agreement with the government of another country or specified territory for four purposes: (a) for the granting of relief in respect of income on which tax has been paid in both jurisdictions, (b) for the avoidance of double taxation, (c) for exchange of information to prevent evasion, and (d) for recovery of income-tax. Section 90A carries the same machinery for agreements adopted by specified associations. The bare text is on Indian Kanoon.

The operative words sit in Section 90(2), which provides that where such an agreement applies, the provisions of the Act "shall apply to the extent they are more beneficial to that assessee". The comparison is not made once for your whole return. It is made income stream by income stream, so it is entirely normal to take the treaty rate on interest while the Act governs your capital gains in the same assessment year.

The two mechanisms behave differently in practice, and confusing them is the most common way a claim collapses.

Notice what is absent from both rows: an exemption. A treaty allocates taxing rights and caps rates under Section 90, it does not delete the income. Our DTAA glossary entry sets out the plain-language version.

FEMA runs on a separate rulebook and answers a separate question. The Income-tax Act decides how much tax the income bears; the Foreign Exchange Management Act 1999 and the RBI's Master Direction on Deposits and Accounts (RBI/FED/2015-16/9, FED Master Direction No. 14/2015-16 dated 1 January 2016, updated as on 2 September 2026) decide which account the money may sit in and how much may leave the country. The tax step comes first.

Tax Treatment in India

A non-resident is taxed in India on income that has its source in India, whatever the treaty says, and the treaty then caps the rate on certain streams. The collection mechanism is Section 195, under which the payer withholds at the DTAA rate or the rate in the Act, whichever is lower. That withholding happens at the moment of payment, which is why the documents must exist before the payment, not before the return.

These are the treaty ceilings Oquilia models for the six countries covering most of its readership. India retains taxing rights in every one of them.

Three treaty quirks matter more than the headline numbers. Under the India-United States treaty the 15 per cent dividend rate applies only where the recipient holds at least 10 per cent of the voting stock, with every other portfolio holding at 25 per cent under Article 10, and Article 10 of the India-Canada treaty is built the same way. Article 12 of both the United States and United Kingdom treaties carries a "make available" test for fees for technical services. Under the 2017 Protocol to the India-Singapore treaty, gains on shares acquired on or after 1 April 2017 are taxable in India, and the limitation-of-benefits clause requires substantial economic presence.

Capital gains are where the misreading is costliest. India retains taxing rights over gains from Indian assets under each of these six treaties, at a ceiling of 12.5 per cent. Domestically, Section 112A charges long-term gains on listed equity at 12.5 per cent above the Rs 1.25 lakh annual threshold and Section 111A charges short-term gains on STT-paid equity at 20 per cent, both as changed by Budget 2024 with effect from 23 July 2024. The treaty does not improve on that.

Surcharge and cess sit on top of the base tax and are not capped by the treaty rate. Surcharge runs at 10 per cent above Rs 50 lakh of total income, 15 per cent above Rs 1 crore and 25 per cent above Rs 2 crore, with the new regime capping the top band at 25 per cent. Health and education cess of 4 per cent then applies to tax plus surcharge, and our surcharge glossary entry sets out the bands.

The documentary trigger bears repeating, because it is where most claims fail. A Tax Residency Certificate from the tax authority of your country of residence, plus Form 10F, is what turns a treaty rate into a deduction figure on the payer's system. Model the rate difference on the DTAA benefit calculator; the TRC glossary entry explains what the certificate must contain.

Tax Treatment Abroad

Every treaty carries an elimination-of-double-taxation article telling your country of residence what to do with the Indian tax you have already paid: Article 24 in the India-United States treaty, Article 23 in the India-Australia treaty. The usual answer is a credit at home for the Indian tax, which is why the Section 195 withholding trail matters long after the Indian return is filed.

The mirror image applies when you are resident in India for the year, the position a returning NRI lands in. India then taxes global income and gives credit for tax paid abroad. The method is ordinary credit, not full credit: the credit is the lower of the foreign tax paid or the Indian tax on that income, computed under Rule 128 and claimed by filing Form 67.

Scenario B is the part readers do not expect. The Rs 38,000 of excess foreign tax is not refunded by India and is not carried forward under the ordinary-credit method; the credit simply stops at the Indian tax on that income. The illustration applies the 30 per cent top slab of the new regime and the 4 per cent cess to a round figure for clarity.

Residence is the hinge. The treaty rate route belongs to a non-resident receiving Indian-source income; the Rule 128 credit route belongs to a person resident in India receiving foreign income. Run the numbers on the foreign tax credit calculator, and where your status for the year is genuinely uncertain, start with the residential status glossary entry and the NRI tax calculator.

Repatriation Mechanics

Once the tax is settled, FEMA decides how much can leave. Under paragraph 4.4 of the RBI Master Direction on Deposits and Accounts, inward remittances to an NRE account and remittances outside India from an NRE account are both permitted, which is what makes NRE the clean route for funds that arrived from abroad in the first place.

The NRO account is where treaty-relieved Indian income usually lands, and it is capped. Paragraph 6.8 of the same Master Direction states that balances in an NRO account cannot be repatriated abroad except by NRIs and PIOs up to USD 1 million, subject to the conditions in the Foreign Exchange Management (Remittance of Assets) Regulations 2016, and that funds can be transferred to NRE and SNRR accounts within that same USD 1 million facility. The transfer to NRE is not a way around the cap; it consumes it.

The outward leg is governed by the Master Direction on Remittance of Assets (RBI/FED/2015-16/8, FED Master Direction No. 13/2015-16 dated 1 January 2016, updated as on 29 June 2026), which repeats that the remittance should not exceed USD one million per financial year and records that this limit does not cover sale proceeds of assets held on a repatriation basis. Paragraph 4.7 of the Deposits Master Direction allows current income such as rent, dividend, pension and interest to be credited to an NRE account, provided the authorised dealer is satisfied that income tax on it has been deducted, paid or provided for.

Model the outward leg on the repatriation calculator; where the income is Indian rent, the rental income tax calculator handles the Indian-side computation first. Our earlier pieces on the USD 1 million NRO route for inherited property and on FCNR(B) deposits cover the two ends of that pipe, and the NRO account glossary entry sets out the account rules in brief.

FAQ

Does a DTAA make my Indian income tax-free?

No. Section 90(2) says the Act applies to the extent it is more beneficial to the assessee, which is a comparison between two sets of rates rather than an exemption. A treaty caps Indian tax on interest, royalty, fees for technical services and dividends, and allocates taxing rights on other income. India retains taxing rights on Indian-source income in all six treaties above, at a long-term gains ceiling of 12.5 per cent.

What is the difference between the treaty rate route and the foreign tax credit route?

The treaty rate route caps Indian tax at source for a non-resident and is claimed through the Indian payer under Section 195, with a Tax Residency Certificate and Form 10F. The foreign tax credit route sets off tax already paid abroad against Indian tax on the same income and is claimed by a person resident in India under Rule 128, by filing Form 67. Your residential status for the year decides which is available.

What documents do I need to claim a treaty rate in India?

A Tax Residency Certificate issued by the tax authority of the country you are resident in, and Form 10F. Both must reach the Indian payer before the payment, because Section 195 withholding is applied at the time of payment. If they arrive late the payer withholds at the rate in the Act, and the excess becomes a refund claim in your Indian return rather than a lower deduction.

What happens if the foreign tax is higher than the Indian tax on the same income?

The credit stops at the Indian tax. On the illustration above, foreign tax of Rs 3,50,000 against Indian tax of Rs 3,12,000 on the same Rs 10,00,000 yields a credit of Rs 3,12,000, and the Rs 38,000 balance is not refunded by India. Under the ordinary-credit method in Rule 128 the credit can wipe out the Indian liability on that income, but it never refunds foreign tax.

Are capital gains on Indian shares exempt under my country's treaty?

No. India retains taxing rights over gains from Indian assets under each of the six treaties above, at a ceiling of 12.5 per cent. Domestically, Section 112A charges long-term gains on listed equity at 12.5 per cent above the Rs 1.25 lakh threshold and Section 111A charges short-term gains on STT-paid equity at 20 per cent, both effective from 23 July 2024 under Budget 2024.

Can I remit the money out once the Indian tax is paid?

Paying the tax is necessary but not sufficient. Under paragraph 6.8 of the RBI Master Direction on Deposits and Accounts, NRO balances are repatriable by NRIs and PIOs up to USD 1 million per financial year, subject to the Foreign Exchange Management (Remittance of Assets) Regulations 2016. Transfers from NRO to NRE come out of that same USD 1 million facility rather than sitting outside it.