DTAA explained: how India's tax treaties work
A DTAA — Double Taxation Avoidance Agreement — is a treaty between two countries that decides which of them gets to tax which income, so the same rupee isn't taxed twice. India has treaties with 90+ countries, and for an NRI they shape three things: the TDS rate on your Indian income, whether India can tax your capital gains at all, and what paperwork unlocks the better treatment.
Two ways a treaty gives relief
Treaties relieve double taxation in two ways. Exemption / rate caps: the treaty either takes the taxing right away from one country entirely (only your residence country may tax) or caps the rate the source country can charge — for instance, dividend TDS capped at 10% instead of India's domestic 20%. Credit: where both countries keep taxing rights, your residence country gives a foreign tax credit for the Indian tax already paid, so you net out to the higher of the two rates rather than the sum.
Crucially, Section 90(2) of the Income-tax Act lets you apply whichever is more beneficial — the Act or the treaty — provision by provision. The treaty is a floor on your treatment, never a penalty.
What treaties typically do, income by income
| Income | What the treaty does | Examples |
|---|---|---|
| Dividends | Caps the TDS rate India can apply, below the domestic 20% (Section 196A for MF income). | UAE 10% · Singapore / UK / Canada / Australia 15% · Oman 12.5% · Mauritius 5% (as amended). The US treaty gives individuals no improvement on MF dividends. |
| Interest | Caps the TDS rate on Indian interest income — most relevant to NRO interest, otherwise taxed at 30% plus surcharge/cess. | India–UAE interest article: 12.5% instead of 30%, with a TRC and Form 10F in place. |
| Capital gains | Allocates the right asset by asset. The shares clause keeps gains on shares of Indian companies taxable in India. The residual clause ("any other property") assigns gains only to your residence country. | Direct stocks & PMS: taxable in India everywhere. Mutual fund units: per ITAT, units are not "shares" — residual clause applies for treaties like UAE and Singapore (under appeal; see below). |
The mutual fund story: units are not shares
The most consequential treaty question for NRI investors right now is whether India can tax capital gains on mutual fund units. The shares clause of treaties like India–UAE and India–Singapore (Article 13(4)) covers shares of Indian companies — but Indian mutual funds are constituted as trusts under the SEBI (Mutual Funds) Regulations, 1996, so units are not shares. That drops unit gains into the residual clause (Article 13(5)), which gives the taxing right only to your residence country. If that country levies no personal capital-gains tax — the UAE, for example — the gain is effectively untaxed.
The ITAT has confirmed this reading twice: Saket Kanoi v. DCIT (ITA 3243/Del/2023, Delhi, October 2024, India–UAE) and Anushka Sanjay Shah v. ITO (ITA 174/Mum/2025, Mumbai, March 2025, India–Singapore). Both orders are under appeal by the Income Tax Department. You can see the effect country by country in our DTAA tax visualizer, including the full legal basis with links to the official orders.
Claiming relief: it is not automatic
Treaty rates and exemptions apply only if you establish your claim. Three pieces: a valid Tax Residency Certificate (TRC) from your residence country (mandatory under Section 90(4)); Form 10F (Rule 21AB), filed electronically on the income-tax portal, supplying details the TRC may not carry; and correct ITR disclosure of the treaty position. Where TDS was already deducted at the higher domestic rate, the route back is a refund through your return.
Illustrative only · Not tax or legal advice. Treaty rates indicative for FY 2025–26 and exclude surcharge/cess where not stated; individual treaty articles differ. Consult a qualified tax professional for your situation.