Section 90 and the DTAA: How NRIs Claim Treaty Relief and Why a Tax Residency Certificate Is Mandatory

A non-resident who earns interest, dividends, capital gains or fees from India is often taxed twice — once in India at source and again in the country where they now live. Section 90 of the Income-tax Act, 1961 is the provision that dissolves this double charge. It authorises the Central Government to sign Double Taxation Avoidance Agreements (DTAAs), and it sets a single governing rule: where a treaty applies, the domestic Act binds the taxpayer only to the extent it is more beneficial than the treaty. India has signed comprehensive DTAAs with more than 90 countries, and the treaty rate almost always undercuts the domestic withholding rate. But the relief is not automatic. Since the Finance Act, 2012 inserted sub-sections (4) and (5), a non-resident cannot invoke a treaty at all without a Tax Residency Certificate (TRC), supplemented by Form 10F.

This guide sets out the statutory architecture of Section 90, the documents the Income Tax Department demands before it will honour a treaty rate, the interaction with foreign tax credit, and the FEMA rules that decide how the money leaves the country. Use the NRI income tax calculator and the DTAA benefit calculator alongside this piece to model your own numbers.

FEMA / DTAA Position

Two separate statutes decide an NRI's exposure, and they use different tests. The Foreign Exchange Management Act, 1999 (FEMA) governs which bank accounts you may hold and how funds may be moved; the Income-tax Act, 1961 decides what is taxed. Residential status under Section 6 of the Income-tax Act turns on physical presence — broadly, a stay of 182 days or more in India during the financial year makes you resident — whereas FEMA residence turns on the purpose and duration of your stay abroad. It is entirely possible to be a "non-resident" under FEMA from the day you emigrate yet remain "resident" under the Income-tax Act for that first year. Confirm your position with the residential status glossary entry before claiming any treaty benefit.

Section 90(2) is the heart of the relief. As enacted in the Income-tax Act, 1961 and reproduced on indiacode.nic.in, it states that where the Central Government has entered into a DTAA, "the provisions of this Act shall apply to the extent they are more beneficial to that assessee." In practice this means an NRI compares two numbers — the domestic rate and the treaty rate — and pays the lower. A United States resident receiving Indian bond interest, for example, faces a 15% treaty ceiling under the India-USA DTAA (effective 12 September 1991) against a domestic Section 195 rate that runs higher once surcharge and cess are added.

Section 90(2A), inserted with effect from 1 April 2017, carves out one hard limit: the General Anti-Avoidance Rule in Chapter X-A applies even where it is not beneficial to the assessee. A treaty cannot be used as a shield for an arrangement whose main purpose is to obtain a tax benefit. This is the single exception to the "more beneficial" principle, and it is why shell structures routed through low-tax treaty partners are routinely disregarded by the assessing officer.

Tax Treatment in India

Where no treaty relief is claimed, an NRI's Indian-source income is taxed at the rates in the Income-tax Act, then loaded with surcharge and a 4% health and education cess. Surcharge rises with income — 10% between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% above Rs 2 crore — and, critically, the new tax regime caps the surcharge at 25% even for the highest earners, against 37% under the old regime. The surcharge glossary entry explains the marginal-relief mechanics.

Capital gains are where the treaty rate matters most. Following Budget 2024, long-term capital gains on listed equity are taxed at 12.5% (with a Rs 1.25 lakh annual exemption) with effect from 23 July 2024, and short-term gains on equity at 20%. For an NRI, tax on the sale of most Indian assets is withheld at source under Section 195 before a single rupee is remitted — the subject of our explainer on Section 195 TDS on payments to NRIs. Model the after-tax number with the NRI capital gains and tax calculator.

The table below compares the domestic character of the four most common NRI income streams against the treaty ceilings for four major corridors. Every figure is a maximum India may charge; the lower of the domestic and treaty number applies once a valid TRC and Form 10F are on file.

Note the capital-gains column: no treaty exempts gains on Indian shares. India retains its taxing right at the domestic 12.5% rate under all four agreements. The India-UAE DTAA (effective 22 September 1993) expressly makes gains on shares of an Indian company taxable in India, and the 2017 India-Singapore protocol removed the earlier exemption for shares acquired on or after 1 April 2017. Anyone told that a Gulf or Singapore treaty makes Indian equity gains tax-free is being misinformed.

To actually obtain any of these treaty rates, three documents must be in place before the payer deducts tax:

1. Tax Residency Certificate (TRC) — issued by the tax authority of the country where you are resident, naming you as a resident for the relevant period. Section 90(4) makes this mandatory; without it, no treaty relief is available at all.
2. Form 10F — a self-declaration filed electronically on the income-tax e-filing portal that supplies the particulars (nationality, tax identification number, address, period of residence) not always printed on a foreign TRC. Section 90(5) and the Income Tax Department portal require it to be furnished online.
3. PAN and, where the payer withholds, a Section 195 workflow — so the deductor can apply the treaty rate rather than the higher domestic rate.

If a payer has already over-deducted, the fix is a lower or nil deduction certificate — see our walkthrough of the Form 13 certificate route.

Tax Treatment Abroad

The treaty rate India charges is not the end of the story, because your country of residence will usually tax the same income again and then allow a credit for the Indian tax already paid. Most Indian DTAAs contain a foreign-tax-credit article — Article 24 of the India-USA DTAA and Article 24 of the India-UK DTAA both oblige the residence country to relieve double taxation by crediting the Indian tax. The foreign tax credit calculator shows how much of your Indian TDS you can reclaim against your home liability.

The mechanism matters. A US-resident NRI who suffers 12.5% Indian LTCG withholding on an Indian mutual-fund redemption reports the same gain on their US return, computes the US tax, and claims a foreign tax credit for the Indian 12.5% under IRC Section 901 supported by the India-USA treaty. If the US rate on that gain exceeds 12.5%, the NRI tops up the difference at home; if it is lower, the credit is capped at the US tax on that income and the excess Indian tax generally cannot be refunded by the US. This is why the treaty rate — not zero — is the number that ultimately sticks.

The credit is only as good as your paperwork. The residence country's tax authority will demand proof of the Indian tax actually paid, which in practice means Form 26AS or the TDS certificate showing the deduction. A treaty rate claimed in India but not evidenced abroad produces a mismatch that residence-country auditors flag routinely. The interaction is summarised below for the two largest NRI populations.

Repatriation Mechanics

Getting the money out of India is a FEMA question, not an income-tax one, and the account it sits in decides the rules. An NRE account holds foreign earnings converted to rupees and is fully and freely repatriable, principal and interest, with the interest exempt from Indian tax. An FCNR(B) deposit holds the balance in foreign currency itself, removing rupee exchange-rate risk entirely — the mechanics are covered in our FCNR(B) deposit guide.

The constraint sits on the NRO account, which holds India-sourced income such as rent, dividends and pension. Under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 issued by the RBI, an NRI may repatriate up to USD 1 million per financial year from an NRO account, across all such balances, after taxes are paid. Any remittance from an NRO account requires a chartered accountant's certificate in Form 15CB and an online declaration in Form 15CA — explained in the Form 15CA/15CB glossary entry and mandated on the Income Tax Department portal. Rental income is a common NRO inflow; size the post-tax repatriable amount with the NRI rental income tax calculator and the repatriation calculator.

The USD 1 million ceiling is per financial year (1 April to 31 March) and resets each year, so a large NRO balance can be moved over successive years without breaching the limit. The RBI's Foreign Exchange Management (Deposit) Regulations, 2016 also allow an NRO balance to be transferred to an NRE account within the same USD 1 million overall cap, provided the CA certifies that all applicable Indian taxes have been paid — a route often used to convert taxed Indian income into freely repatriable form. Because Form 15CB requires the CA to confirm the correct treaty rate has been applied, the TRC and Form 10F discussed above are effectively a precondition for repatriation as well as for the tax rate itself.

FAQ

Do I need a fresh TRC every year?

Yes. A Tax Residency Certificate certifies residence for a specified period, normally a single tax year, so treaty relief under Section 90(4) requires a current TRC for each financial year in which you claim it. A 2023 TRC does not support a treaty claim for income received in the 2025-26 financial year.

Is Form 10F still required if my TRC already has all the details?

The Income Tax Department requires Form 10F to be furnished electronically on the e-filing portal, and in practice it is expected even where the foreign TRC appears complete, because the prescribed particulars under Section 90(5) — status, nationality, TIN, period and address — are standardised on the Indian form. Filing it online avoids the payer defaulting to the higher domestic rate.

Can a DTAA make my Indian capital gains tax-free?

No. None of the India-USA, India-UK, India-UAE or India-Singapore treaties exempt gains on Indian shares; India retains taxing rights and charges long-term capital gains at 12.5% following the 23 July 2024 change. Treat any claim of "exempt" capital gains as a red flag.

What happens if I claim a treaty rate without a TRC?

The payer must deduct at the full domestic Section 195 rate, and the assessing officer can deny the treaty benefit outright under Section 90(4). Your only remedy is to file an ITR-2 and claim a refund of the excess, which delays access to your money by several months.

Does the treaty override India's anti-avoidance rules?

No. Section 90(2A), effective 1 April 2017, preserves the General Anti-Avoidance Rule in Chapter X-A even where it is less beneficial than the treaty. An arrangement whose main purpose is a tax benefit can be disregarded regardless of the DTAA.

How much can I repatriate from my NRO account?

Up to USD 1 million per financial year across all NRO balances, under the RBI's Foreign Exchange Management (Remittance of Assets) Regulations, 2016, after taxes are paid and supported by Form 15CA and Form 15CB. NRE and FCNR(B) balances are fully repatriable without this cap.

Which regime caps my surcharge lower?

The new tax regime caps surcharge at 25% of base tax, against 37% under the old regime, for income above Rs 2 crore. For high-income NRIs with substantial Indian capital gains, the new regime therefore produces a lower effective peak rate.