Claiming DTAA Relief Under Section 90: Why NRIs Need a TRC and Form 10F Before Treaty Benefits Apply

A Non-Resident Indian who earns Indian-source income, whether it is interest on a fixed deposit, a dividend cheque, or capital gains on listed shares, will usually find that tax has already been deducted before the money reaches the bank account. The instinctive response is to claim the lower rate promised under a Double Taxation Avoidance Agreement. But Section 90 of the Income-tax Act, 1961 makes treaty relief conditional, not automatic. Two documents stand between an NRI and the reduced rate: a Tax Residency Certificate and Form 10F. Get either wrong and the assessing officer can apply the full domestic withholding rate under Section 195, leaving the NRI to chase a refund that can take more than a year.

This article walks through exactly what Section 90 requires, what India taxes and at what rate, how the foreign country gives credit for Indian tax, and how the post-tax money is repatriated. Every rate below is drawn from the Income Tax Department's non-resident e-filing guidance and the operative treaty texts; none of it should be treated as a substitute for advice on your specific facts.

FEMA / DTAA Position

The legal foundation is Section 90(2) of the Income-tax Act, 1961: where the Central Government has entered into a DTAA with another country, the provisions of the Act apply to the assessee "only to the extent they are more beneficial". In plain terms, the NRI picks whichever is lower, the Act's rate or the treaty rate, head of income by head of income. The India-United States treaty has been in force since 12 September 1991, the India-United Kingdom treaty since 26 October 1993, and the India-United Arab Emirates treaty since 22 September 1993, so the relief is long-established rather than novel.

The catch is in the proof. Section 90(4) provides that a non-resident cannot claim treaty relief "unless a certificate of his being a resident in any country outside India is obtained by him from the Government of that country". This is the Tax Residency Certificate, and it must come from the foreign tax authority, not from the NRI's employer or bank. Section 90(5) then requires the assessee to furnish such "other documents and information" as may be prescribed; the prescribed form is Form 10F, filed electronically on the Income Tax Department portal at incometax.gov.in.

Crucially, the DTAA does not switch off India's taxing rights so much as cap or reallocate them. The India-UAE treaty notes confirm that capital gains on shares of an Indian company remain taxable in India even though the UAE levies no personal income tax. So treaty relief lowers the rate; it does not, for capital gains, produce an exemption. An NRI can estimate the net effect using the DTAA benefit calculator before deciding whether the paperwork is worth filing.

It is also worth separating tax law from exchange-control law. The Foreign Exchange Management Act, 1999 governs whether funds can leave India and through which account; the Income-tax Act governs how much tax is paid. The two operate in parallel, and clearing one does not satisfy the other. Your residential status under Section 6 of the Income-tax Act and your residential status under FEMA are determined by different tests and can diverge in the year you move.

Tax Treatment in India

India taxes an NRI only on income that is received, accrues, or arises in India. The withholding mechanism is TDS under Section 195, which applies to most payments to non-residents. Where a valid TRC and Form 10F are on record, the payer can deduct at the treaty rate; absent them, the higher domestic rate applies and the NRI recovers the difference only by filing a return.

The headline capital-gains numbers changed with Budget 2024, effective 23 July 2024. Long-term capital gains on listed equity and equity mutual funds are taxed at 12.5%, with the first Rs 1,25,000 of such gains exempt in a financial year. Short-term capital gains on the same assets are taxed at 20%. For property and gold acquired on or after 23 July 2024, long-term gains are taxed at 12.5% without indexation; assets acquired before that date retain the option of 20% with indexation under the grandfathering rule. These rates apply to NRIs as the floor against which the treaty rate is compared.

The picture by income head, comparing the domestic withholding position with the treaty rate, looks like this:

The India-US position on dividends is the textbook illustration of why you read the treaty before assuming it helps: under Article 10, the 15% rate applies only where the recipient holds at least 10% of the voting stock, and the portfolio rate is 25%, higher than India's 20% domestic deduction. For a small US shareholder, the treaty rate is worse, and Section 90(2) lets them keep the 20% domestic rate. The interest rate of 15% under all three treaties usually beats the domestic position, which is why interest is the most common reason NRIs file Form 10F.

On top of the base tax, India applies a surcharge on higher incomes and a 4% health and education cess on the total. The surcharge runs at 10% for income between Rs 50 lakh and Rs 1 crore, 15% from Rs 1 crore to Rs 2 crore, and 25% from Rs 2 crore to Rs 5 crore. Above Rs 5 crore the surcharge is capped at 25% in the new tax regime, materially lower than the ceiling that applied under the old regime. An NRI modelling a large one-off gain should run the figures through the NRI tax calculator to see the combined surcharge-and-cess load.

Tax Treatment Abroad

The treaty does not let the same rupee of income escape tax in both countries; it decides which country taxes first and obliges the other to give relief. For US-resident NRIs, Article 24 of the India-US treaty provides that the United States shall allow a foreign tax credit for income tax paid to India. The mechanism is a credit against US liability, not a refund of Indian tax, so the NRI still files an Indian return, pays the Indian tax at the treaty rate, and then offsets that amount against the US bill on the same income.

From the Indian side, where an NRI is also taxed in India on doubly-taxed income and seeks the reverse credit, the claim is made through Form 67, which must be filed on or before the due date for furnishing the return under the Income Tax Department's rules. The foreign tax credit calculator helps estimate the creditable amount before the return is filed. Missing the Form 67 timeline has historically been a frequent reason FTC claims are disallowed, so the date matters as much as the arithmetic.

Where no treaty exists between India and the country of residence, relief does not vanish. Section 91 of the Income-tax Act provides unilateral relief: India allows a deduction from the Indian tax of a sum calculated on the doubly-taxed income at the lower of the Indian rate or the foreign rate. This is narrower than treaty relief and is the fallback, not the first choice, which is why confirming whether a DTAA is in force is the first step before any computation.

The practical sequencing point for residents of zero-tax jurisdictions is the UAE example. Because the UAE levies no personal income tax, there is no foreign tax against which to claim a credit, and the India-UAE treaty's value lies in the reduced Indian rates: 10% on dividends, 12.5% on interest, and 10% on royalties. But the treaty notes are explicit that the TRC must be supported by proof of a UAE establishment, and that capital gains on Indian company shares stay taxable in India. The benefit is real but it is a rate reduction, never a clean exemption.

Repatriation Mechanics

Once Indian tax is settled, moving the money out is governed by RBI rules made under FEMA, 1999, and the choice of account decides what is freely repatriable. Funds in a Non-Resident External (NRE) account and an FCNR(B) deposit are fully and freely repatriable, principal and interest, because they hold income earned abroad. Funds in a Non-Resident Ordinary (NRO) account, which collects Indian-source income such as rent, dividends, and pension, are repatriable only within the RBI's annual ceiling.

That ceiling is USD 1 million per financial year out of the balances in an NRO account, a limit set by the Reserve Bank of India and applying across all NRO accounts of the same person. The tax-and-document gate before remittance is Form 15CA and a chartered accountant's certificate in Form 15CB, which together confirm that the appropriate tax has been deducted or paid before the authorised dealer bank releases the funds abroad. An NRI planning a phased transfer can size each year's remittance with the repatriation calculator.

The account-by-account position is summarised below:

The treaty relief and the repatriation rules interact most often on rental income, which lands in an NRO account, suffers TDS under Section 195, and then counts towards the USD 1 million ceiling on the way out. An NRI letting Indian property should compute the Indian tax first using the rental income tax calculator and only then plan the remittance, because the Form 15CB certificate the bank demands will reference the tax already discharged.

FAQ

Is a Tax Residency Certificate alone enough to claim DTAA benefits?

No. Section 90(4) of the Income-tax Act, 1961 makes the TRC mandatory, but Section 90(5) separately requires Form 10F to be furnished with the prescribed particulars. Since the Income Tax Department moved Form 10F to mandatory electronic filing on the incometax.gov.in portal, both the TRC from the foreign government and the e-filed Form 10F must be on record before the payer applies the treaty rate.

Can DTAA make my capital gains in India tax-free?

No. A treaty allocates taxing rights and can reduce the rate, but for capital gains India retains the right to tax. Long-term gains on listed equity are taxed at 12.5% after the Rs 1,25,000 annual exemption, and the India-UAE treaty notes confirm gains on Indian company shares remain taxable in India despite the UAE's zero personal income tax. Treat any claim that DTAA exempts capital gains as a red flag.

What if my country has no tax treaty with India?

Section 91 of the Income-tax Act provides unilateral relief. India allows a deduction from Indian tax computed on the doubly-taxed income at the lower of the Indian effective rate or the foreign rate. This is narrower than a treaty claim and there is no reduced withholding at source, so tax is deducted at the full domestic rate and relief is claimed in the return.

How much can I repatriate from my NRO account each year?

Up to USD 1 million per financial year, a limit set by the Reserve Bank of India under FEMA, 1999 and applied across all your NRO accounts combined. The remittance also requires Form 15CA and a chartered accountant's Form 15CB confirming the tax position before the bank releases funds. NRE and FCNR(B) balances, by contrast, are fully repatriable without this ceiling.

Why was the treaty rate on my US dividends higher than expected?

Under Article 10 of the India-US treaty, the 15% rate applies only where the recipient holds at least 10% of the voting stock; portfolio shareholders face a 25% treaty rate. Because India's domestic deduction on dividends is 20%, Section 90(2) lets a small US shareholder retain the lower 20% domestic rate. The treaty is not always the cheaper route, which is the whole point of the "more beneficial" test.

How do I avoid being taxed twice on the same income?

Pay the Indian tax at the treaty rate, then claim a foreign tax credit in your country of residence; for US residents this is provided by Article 24 of the India-US treaty. Where India is the residence country claiming the reverse credit, file Form 67 on or before the return due date. Missing that deadline is a common reason credits are disallowed.

Does FEMA residential status match my income-tax residential status?

Not necessarily. Residential status under Section 6 of the Income-tax Act, 1961 turns on day-counting in India, while FEMA residential status turns on intention and purpose of stay. The two are determined under different statutes and can diverge, particularly in the year you relocate, so each must be checked separately.