India-USA DTAA Article 15 dependent personal services: 183-day test, US-source salary, and tax credit method
Article 15 of the India-USA DTAA decides where an Indian on US assignment pays tax: salary is taxed in India only if the 183-day, employer, and PE charge-back tests all align.
The Mumbai-based engineer who flies to San Francisco on 11 January 2026 for a six-month deputation, paid by her Indian employer, faces a deceptively simple question: which country gets to tax her salary between January and July? The answer turns on Article 15 of the India-United States Double Taxation Avoidance Agreement, signed on 12 September 1989 and notified for taxes withheld at source from 12 September 1991.
Article 15 covers "dependent personal services" — the treaty term for employment income other than directors' fees, artistes, government service or pensions. It is the most litigated provision because it draws the line between an Indian payroll case and a US W-2 case, and that line is drawn by a 183-day test that does not align with either country's natural calendar year. This guide walks through the treaty position, the Indian computation, the US overlay, the foreign tax credit mechanics, and the rupee repatriation question that follows once the assignment ends.
FEMA / DTAA Position
Article 15(1) states that salaries derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. The default is residence-state taxation; physical exercise of duties in the source state shifts the right to tax.
Article 15(2) carves out an exception. Even where employment is exercised in the source state, the salary remains taxable only in the residence state if all three of the following conditions are satisfied:
| Condition | Test under Article 15(2) of the India-USA DTAA |
|---|---|
| (a) Presence | Recipient is present in the other State for 183 days or fewer in the fiscal year concerned |
| (b) Employer | Remuneration is paid by, or on behalf of, an employer who is not a resident of the other State |
| (c) Charge-back | Remuneration is not borne by a permanent establishment or fixed base of the employer in the other State |
The "fiscal year concerned" is read as the Indian financial year (1 April to 31 March) when the residence state is India, and as the US calendar year (1 January to 31 December) when the residence state is the United States. This split timeline is the most common point of confusion for January-to-August assignments, where the calendar count can cross 183 days while the Indian financial-year count does not.
Where a taxpayer is treated as resident under both countries' domestic rules, Article 4(2) supplies a sequential tie-breaker: permanent home, then centre of vital interests, then habitual abode, then nationality, and finally mutual agreement. A Bengaluru engineer with a leased Cupertino apartment and an Indian family home will typically tie-break to India under "permanent home" for the first year.
The FEMA overlay sits alongside the income-tax test. FEMA 1999, read with the RBI Master Direction on Liberalised Remittance Scheme, classifies the engineer as a "person resident in India" until she leaves India for an uncertain period or for employment exceeding 182 days. A six-month deputation returning by July keeps her FEMA-resident; an open-ended relocation flips her to "person resident outside India" on the day of departure. Bank-account designations hinge on this FEMA threshold under Section 2(v) of FEMA 1999, not on the 182-day count under Section 6 of the Income Tax Act 1961.
Tax Treatment in India
Where Article 15(2) protects the salary from US tax, India taxes the full amount under the head "Salaries" as per Section 15 of the Income Tax Act 1961. The employer issues Form 16, US per-diem allowances are tested against Rule 2BB and Section 10(14)(i), and the engineer files Form ITR-2 by 31 July following the financial year.
Where the 183-day, employer or PE condition fails, the salary suffers US tax first and India then offers a credit. The mechanism sits in Section 90 of the Income Tax Act 1961, which gives the DTAA primacy where it is more beneficial than domestic law, read with Rule 128 of the Income Tax Rules 1962 inserted by the CBDT in 2017. Rule 128 requires:
- Credit allowed in the year the income corresponding to the foreign tax is offered for tax in India.
- Credit is the lower of (i) tax paid abroad and (ii) Indian tax payable on the doubly-taxed income.
- Credit computed source-by-source for each country and head of income.
- Form 67 furnished electronically on or before the Section 139(1) due date.
Form 67 is the linchpin. CBDT Notification 100/2022 dated 18 August 2022 extended the window to the belated-return due date under Section 139(4), but the credit is still at risk where Form 67 is filed after assessment is finalised. Bangalore and Mumbai tribunal benches have held — in Brinda Rama Krishna v. ITO (ITA No. 454/Bang/2021) — that Form 67 is directory rather than mandatory, but the safer course is to file before the return.
The 2025-26 Indian slab math for a deputation-year taxable salary of Rs 38 lakh under the new tax regime (Section 115BAC) is:
| Slab (FY 2025-26, new regime) | Rate | Tax on Rs 38 lakh |
|---|---|---|
| Up to Rs 4 lakh | Nil | Rs 0 |
| Rs 4 lakh to Rs 8 lakh | 5% | Rs 20,000 |
| Rs 8 lakh to Rs 12 lakh | 10% | Rs 40,000 |
| Rs 12 lakh to Rs 16 lakh | 15% | Rs 60,000 |
| Rs 16 lakh to Rs 20 lakh | 20% | Rs 80,000 |
| Rs 20 lakh to Rs 24 lakh | 25% | Rs 1,00,000 |
| Above Rs 24 lakh | 30% | Rs 4,20,000 |
| Tax before cess | Rs 7,20,000 | |
| Health and education cess at 4% | Rs 28,800 | |
| Total Indian tax liability | Rs 7,48,800 |
Surcharge in the new regime is capped at 25% for incomes above Rs 2 crore, with no 37% rate available to new-regime filers. Section 87A rebate is Rs 60,000 in the new regime for FY 2025-26, available where total income does not exceed Rs 12 lakh — not relevant at this income level. Our NRI tax calculator lets you stress-test the assignment length and salary split before filing.
Tax Treatment Abroad
Where the employment is exercised in the US for more than 183 days, or paid by a US payroll, or charged back to a US permanent establishment, the IRS taxes the salary as "US-source compensation for personal services" under IRC Section 861(a)(3). Federal tax applies on W-2 wages, withheld for non-resident aliens at the rates in IRS Notice 1392 and at standard W-4 rates once the engineer crosses the Substantial Presence Test.
The Substantial Presence Test (IRC Section 7701(b)(3)) treats a foreign national as US-resident if she is physically present at least 31 days in the current year and 183 weighted days over a three-year look-back (current year days plus one-third of prior year plus one-sixth of the year before that). An engineer arriving on 11 January 2026 and leaving on 11 July 2026 spends 182 days in the US in 2026 and would typically file Form 1040-NR for US-source income.
State tax is the under-appreciated layer. California taxes wages for services rendered within the state at rates rising to 13.3% above USD 1 million, with no state-level DTAA cover because the treaty binds federal taxes only. New York applies a similar source rule with rates up to 10.9%. Effective US burden can therefore exceed the headline federal number by 9 to 13 percentage points in a high-tax state.
US tax paid is creditable in India under Article 25(2)(a) of the treaty — the credit method — read with Section 90 of the Income Tax Act 1961 and Rule 128. The credit is limited to the Indian tax attributable to the doubly-taxed salary at the average Indian rate. US state income tax is also creditable per CBDT Circular 333 dated 2 April 1982 and the line of Bangalore ITAT rulings in Wipro Ltd v. JCIT, provided the engineer has paid the state tax during the relevant Indian financial year. We covered the adjacent capital-gains withholding question in our piece on Section 195 TDS on NRI property sale.
Two US disclosure forms apply once asset-value thresholds are crossed:
| Form | Filed with | Threshold (single filer abroad) | Penalty for non-filing |
|---|---|---|---|
| FinCEN Form 114 (FBAR) | FinCEN / Treasury | Aggregate USD 10,000 across foreign accounts at any point in the year | USD 10,000 non-wilful; greater of USD 100,000 or 50% of balance wilful |
| IRS Form 8938 (FATCA) | IRS with Form 1040 | USD 200,000 year-end or USD 300,000 any time | USD 10,000 initial plus USD 50,000 continuation; 40% accuracy-related |
Indian NRO accounts, PPF balances, mutual fund holdings and demat accounts all aggregate into the FBAR threshold. The IRS has historically treated PPF accounts as foreign-trust-like arrangements attracting Forms 3520 and 3520-A in addition to FBAR — a position not formally retracted as of 2026.
Repatriation Mechanics
Once the assignment ends, the engineer has to decide what happens to the USD salary credited to her US checking account and the rupee salary in her Indian account. FEMA classifies bank accounts as NRO, NRE and FCNR(B) for non-residents, and resident savings or RFC for those who have returned. The rules differ sharply:
| Account | Held by | Currency | Repatriable abroad? | Tax in India |
|---|---|---|---|---|
| NRE | Non-resident only | INR (USD-funded) | Fully repatriable, principal and interest | Interest exempt under Section 10(4)(ii) IT Act 1961 |
| NRO | Non-resident only | INR | Up to USD 1 million per FY post-tax | Interest taxable at slab; TDS 30% plus applicable surcharge |
| FCNR(B) | Non-resident only | USD, GBP, EUR, JPY, AUD, CAD | Fully repatriable; term-deposit only | Interest exempt under Section 10(4)(ii) IT Act 1961 |
| RFC | Returning Indian (RNOR or resident) | USD, GBP, EUR | Fully repatriable while holding the account | Exempt while RNOR; taxable from the resident-and-ordinarily-resident year |
The USD 1 million ceiling on NRO repatriation is set by the RBI Master Direction on Remittance of Assets and applies cumulatively across all NRO funds — sale proceeds of property, rental income, salary credits, dividends and inheritance — per financial year. Form 15CA and Form 15CB (the latter signed by a chartered accountant under Section 195(6) read with Rule 37BB) accompany every outward remittance from an NRO account above the Rule 37BB(3) threshold of Rs 5 lakh per transaction. We have set out the FEMA framework for selling Indian real estate as an NRI in our FEMA immovable property repatriation analysis.
For the deputation-year engineer who returns to India in July 2026, the practical sequence is:
- Convert US checking-account USD into a fresh FCNR(B) deposit or remit to NRE before the FEMA non-resident status lapses at the close of FY 2026-27.
- Run the rental-income computation on any Indian property let out during the assignment using our rental income tax calculator, confirming that the tenant has withheld under Section 195 where rent was credited to an NRO account.
- Use our NRI repatriation calculator to model the USD 1 million annual ceiling, the Form 15CA/CB chain and the residual TDS before instructing the bank.
For the comparable UAE corridor, our piece on the India-UAE DTAA dividend rate sets out the Article 10 mechanics. Authoritative sources for the rules above: the Income Tax Act 1961 on indiacode.nic.in and the FEMA Master Directions on rbi.org.in.
FAQ
Does the 183-day count in Article 15 use the Indian financial year or the US calendar year?
Article 15(2)(a) refers to "the fiscal year concerned". The Income Tax Department reads this as the Indian financial year (1 April to 31 March) when the residence state under Article 4 is India, and the United States uses its calendar year when applying the test to a US resident. The two windows can produce different answers for the same trip — most often on January-to-August assignments.
If I am paid in dollars into a US bank but my employer is Indian, do I still get Article 15(2) protection?
Yes, provided all three conditions are met: presence is 183 days or fewer, the employer is not US-resident, and the cost is not charged to a US permanent establishment. The currency of payment does not break the protection on its own, but a US payroll set up to handle dollar disbursement can — because it makes the cost-bearing entity a US resident in substance.
Can I claim the foreign tax credit on US state tax in India?
Yes. CBDT Circular 333 dated 2 April 1982 and the line of Bangalore ITAT rulings in Wipro Ltd v. JCIT confirm that US state taxes are eligible for credit under Section 90 of the Income Tax Act 1961, in addition to federal tax. The credit is computed source-by-source and capped at the Indian tax attributable to that income at the average rate.
What happens if I file Form 67 late?
Form 67 should be filed on or before the Section 139(1) return due date. CBDT Notification 100/2022 dated 18 August 2022 extends the window to the Section 139(4) belated-return due date. Tribunal benches in Bangalore and Mumbai have held Form 67 to be directory rather than mandatory, but the credit is at risk if assessment closes without it on record.
Do I have to report my Indian PPF and mutual funds in FBAR and Form 8938?
Yes. PPF, NRO and NRE balances and Indian mutual funds aggregate into the FBAR threshold of USD 10,000 and the Form 8938 thresholds of USD 200,000 year-end or USD 300,000 peak for a single filer abroad. The IRS has historically treated PPF as a foreign-trust-like arrangement attracting Forms 3520 and 3520-A as well.
Will my salary be subject to Indian TDS even when Article 15 gives the US the taxing right?
Section 192 of the Income Tax Act 1961 requires Indian employers to withhold tax on salary "estimated" to be chargeable to tax in India. Where Article 15(2) protection falls away, the employer can apply for a lower or nil withholding certificate under Section 197 to avoid double withholding, in line with the framework in CBDT Circular 685 dated 17 June 1994.
How long can I retain NRE and FCNR(B) accounts after returning to India?
NRE accounts must be redesignated as resident accounts immediately on return for permanent settlement, per FEMA Notification 5(R)/2016-RB. FCNR(B) deposits run until maturity at the contracted rate but fresh deposits are barred once resident. NRE balances can be moved to an RFC account, and the RNOR carve-out under Section 6(6) keeps RFC interest exempt for the two-to-three-year RNOR window.
Sources & Citations
- Income Tax Act 1961 — Income Tax Department — incometax.gov.in
- Income Tax Act 1961 — India Code — indiacode.nic.in
- RBI Master Directions on Remittance of Assets and FEMA — rbi.org.in
Frequently Asked Questions
Does the 183-day count in Article 15 use the Indian financial year or the US calendar year?
Article 15(2)(a) refers to 'the fiscal year concerned'. The Income Tax Department reads this as the Indian financial year (1 April to 31 March) when the residence state under Article 4 is India, and the US uses its calendar year when applying the test to a US resident. The two windows can produce different answers for the same trip, most often on January-to-August assignments.
If I am paid in dollars into a US bank but my employer is Indian, do I still get Article 15(2) protection?
Yes, provided all three conditions are met: presence is 183 days or fewer, the employer is not US-resident, and the cost is not charged to a US permanent establishment. The currency of payment does not break the protection on its own, but a US payroll set up to handle dollar disbursement can, because it makes the cost-bearing entity a US resident in substance.
Can I claim the foreign tax credit on US state tax in India?
Yes. CBDT Circular 333 dated 2 April 1982 and the line of Bangalore ITAT rulings in Wipro Ltd v. JCIT confirm that US state taxes are eligible for credit under Section 90 of the Income Tax Act 1961, in addition to federal tax. The credit is computed source-by-source and capped at the Indian tax attributable to that income at the average rate.
What happens if I file Form 67 late?
Form 67 should be filed on or before the Section 139(1) return due date. CBDT Notification 100/2022 dated 18 August 2022 extends the window to the Section 139(4) belated-return due date. Tribunal benches in Bangalore and Mumbai have held Form 67 to be directory rather than mandatory, but the credit is at risk if assessment closes without it on record.
Do I have to report my Indian PPF and mutual funds in FBAR and Form 8938?
Yes. PPF, NRO and NRE balances and Indian mutual funds aggregate into the FBAR threshold of USD 10,000 and the Form 8938 thresholds of USD 200,000 year-end or USD 300,000 peak for a single filer abroad. The IRS has historically treated PPF as a foreign-trust-like arrangement attracting Forms 3520 and 3520-A as well.
Will my salary be subject to Indian TDS even when Article 15 gives the US the taxing right?
Section 192 of the Income Tax Act 1961 requires Indian employers to withhold tax on salary estimated to be chargeable to tax in India. Where Article 15(2) protection falls away, the employer can apply for a lower or nil withholding certificate under Section 197 to avoid double withholding, in line with the framework in CBDT Circular 685 dated 17 June 1994.
How long can I retain NRE and FCNR(B) accounts after returning to India?
NRE accounts must be redesignated as resident accounts immediately on return for permanent settlement, per FEMA Notification 5(R)/2016-RB. FCNR(B) deposits run until maturity at the contracted rate but fresh deposits are barred once resident. NRE balances can be moved to an RFC account, and the RNOR carve-out under Section 6(6) keeps RFC interest exempt for the two-to-three-year RNOR window.