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📌 Scope & Definitions

 

Article 1 — General Scope

• Applies to residents of one or both of the US and India

• Does not restrict any exemption, deduction, or credit available under domestic law or any other agreement between the two States

• Saving clause: each State may tax its own residents and citizens as if the Convention had not come into effect

• Former citizens who renounced citizenship principally for tax avoidance purposes treated as citizens for 10 years following renunciation

 

Article 2 — Taxes Covered

• United States: Federal income taxes under the IRC (excluding accumulated earnings tax, personal holding company tax, and social security taxes); excise taxes on insurance premiums paid to foreign insurers and on private foundations

• India: Income tax including surcharge under the Income-tax Act (excluding tax on undistributed income of companies); surtax

• Does not cover penalties or default amounts relating to the above taxes

• Applies to any substantially similar future taxes enacted by either country

 

Article 3 — General Definitions

• Defines: India, United States, person, company, competent authority, national, international traffic, taxable year

• India's competent authority: Central Government, Ministry of Finance (Department of Revenue)

• US competent authority: Secretary of the Treasury or delegate

• Undefined terms carry their respective domestic-law meaning

 

📌 Residence & Permanent Establishment

 

Article 4 — Residence

• A person is a resident if liable to tax by reason of domicile, residence, citizenship, incorporation, or place of management

• Dual-residency tie-breakers for individuals applied in this order: (1) permanent home, (2) centre of vital interests, (3) habitual abode, (4) nationality, (5) mutual agreement

• A company that is a dual resident is generally outside the scope of the Convention (with limited exceptions for dividends, non-discrimination, MAP, and exchange of information)

 

Article 5 — Permanent Establishment (PE)

• PE = fixed place of business: place of management, branch, office, factory, workshop, mine, oil/gas well, quarry, warehouse (for storage services), farm/plantation, store/sales outlet

• Natural resource installation or structure = PE if used for more than 120 days in any 12-month period

• Building site, construction, installation, or assembly project = PE if it continues for more than 120 days in any 12-month period

• Service PE: furnishing of services through employees = PE if activities continue for more than 90 days in any 12-month period, OR if services are performed for a related enterprise

• Dependent agent with contract authority = PE; agent who habitually maintains stock of goods and secures orders = PE

• Preparatory or auxiliary activities do not create a PE

• Independent broker or commission agent acting in the ordinary course of business does not create a PE

 

📌 Business & Property Income

 

Article 6 — Income from Immovable Property (Real Property)

• Income from real property situated in the other State may be taxed in the situs State

• Covers agriculture, forestry, direct use, letting, and all other forms of use of immovable property

• Applies to income from immovable property of an enterprise and from property used for independent personal services

 

Article 7 — Business Profits

• Taxable only in the residence State unless a PE exists in the other State

• If PE exists, the other State may also tax profits attributable to: (a) the PE itself, (b) sales of same/similar goods as those sold through the PE, (c) other same/similar business activities as those effected through the PE

• PE profits determined on an arm's-length, separate-entity basis

• Executive, general administrative, R&D, and interest expenses deductible against PE profits

• No profits attributed to a PE solely from purchasing goods for the enterprise

 

Article 8 — Shipping and Air Transport

• Profits from ships or aircraft in international traffic: taxable only in the residence State

• Covers transportation of passengers, mail, livestock, and goods; ticket sales; related activities; and rental of ships/aircraft incidental to transport

• Container profits (including trailers and barges used in connection with international shipping/air transport): taxable only in the residence State

• Gains from alienation of ships, aircraft, or containers used in international traffic: taxable only in the residence State

• Note: containers not used in connection with international shipping/air traffic are treated as royalty income under Article 12

 

Article 9 — Associated Enterprises (Transfer Pricing)

• Each State may adjust income where related-party transactions are not at arm's length

• Where one State makes an upward adjustment, the other State shall make a corresponding downward adjustment

 

📌 Passive Income — Withholding Rates

 

Article 10 — Dividends

• Direct investment (beneficial owner holds ≥10% voting stock): 15%

• All other cases (portfolio): 25%

• RIC (Regulated Investment Company) dividends: 25% (portfolio rate applies regardless of ownership)

• REIT dividends: domestic rate (treaty cap of 25% applies only if individual beneficially owns <10% of the REIT)

• Dividends attributable to a PE or fixed base in the source State: taxed under Business Profits (Article 7) or Independent Personal Services (Article 15)

 

Article 11 — Interest

• Bank / bona fide financial institution (including insurance company) loans: 10%

• All other interest: 15%

• Fully exempt (0%) at source if:

  • Derived and beneficially owned by the Government, local authority, Reserve Bank of India, or Federal Reserve Banks

  • On loans extended or endorsed by the Export-Import Bank of the US (when India is the source State) or by the EXIM Bank of India (when the US is the source State)

  • Government-approved debt claims to residents of the other State

• Excess interest arising from a special relationship between payer and recipient taxed under domestic law

 

Article 12 — Royalties and Fees for Included Services (FIS)

• Industrial, commercial, or scientific equipment royalties: 10%

• All other royalties (copyrights, patents, trademarks, designs, plans, trade secrets, know-how, motion pictures, films, tapes for TV/radio): 15% (reduced to 10–15% transitional rates for the first 5 years)

• Fees for Included Services (FIS): same rates as royalties — this is a unique feature of the US–India treaty not found in most other US treaties

• FIS = fees for managerial, technical, or consultancy services where the service provider makes available technical knowledge, experience, skill, know-how, or processes to the recipient

• Does not include services that are ancillary to the sale of property, or services that are not technology-based

• Royalties/FIS attributable to a PE or fixed base: taxed under Article 7 or Article 15

 

📌 Capital Gains

 

Article 13 — Gains

• Each State may tax capital gains in accordance with its own domestic law — the treaty does not limit source-country taxation of capital gains (unlike most US treaties)

• Exception: gains from alienation of ships, aircraft, or containers used in international traffic are taxable only in the residence State (per Article 8)

• Practical effect: both India and the US may tax capital gains on Indian-source or US-source assets per their own rules; foreign tax credit relief applies under Article 25

 

📌 Permanent Establishment Tax (Branch Profits Tax)

 

Article 14 — Permanent Establishment Tax

• The US may impose a branch profits tax on profits of Indian enterprises attributable to a US PE, in addition to regular corporate tax

• Applies also to income from real property (Article 6), royalties/FIS (Article 12), and gains (Article 13) that are effectively connected with a US PE on a net-income basis

 

📌 Personal Services

 

Article 15 — Independent Personal Services

• Taxable in the residence State

• Also taxable in the source State if the individual has a fixed base regularly available in that State, or is present in that State for a period(s) totalling more than 90 days in any 12-month period

• Income attributable to the fixed base or to activities during the 90-day period may be taxed in the source State

 

Article 16 — Dependent Personal Services (Employment Income)

• Taxable only in the residence State unless work is performed in the other State

• Exemption from source-State tax if:

  • Individual is present for ≤183 days in a 12-month period, AND

  • Remuneration is paid by, or on behalf of, an employer who is not a resident of the source State, AND

  • Remuneration is not borne by a PE or fixed base in the source State

 

Article 17 — Directors' Fees

• Directors' fees and similar payments derived by a resident of one State from a company resident in the other State may be taxed in the other (source) State

 

Article 18 — Income Earned by Entertainers and Athletes

• Income derived by entertainers (theatre, film, radio, TV, music) and athletes from activities performed in the other State may be taxed in the State of performance

• Applies regardless of Articles 15 and 16

• Exemption if the visit to the other State is substantially supported by public funds of the residence State or a political subdivision thereof

 

📌 Government Service, Pensions & Education

 

Article 19 — Remuneration and Pensions in Respect of Government Service

• Salaries and wages paid by a State or its political subdivision to an individual for services rendered to that State: taxable only in the paying State

• Exception: taxable only in the other State if the individual is a resident and national of that other State (and not a national of the paying State)

• Government pensions: same rules as above; private-sector pension rules (Article 20) apply if the individual is a resident and national of the other State

 

Article 20 — Private Pensions, Annuities, Alimony, and Child Support

• Private pensions and annuities derived by a resident of one State from sources in the other State: taxable only in the residence State

• Social security benefits and other public pensions paid by one State to a resident of the other State (or to a US citizen): taxable only in the paying State

• Alimony paid to a resident of one State from the other State: taxable only in the recipient's State

• Child support payments: exempt from tax in both States

 

Article 21 — Payments Received by Students and Apprentices

• An Indian student or business apprentice present in the US (or a US student/apprentice in India) principally for education or training is exempt from tax in the host State on:

  • Payments from abroad for maintenance, education, or training

• Special benefit unique to the US–India treaty: Indian students in the US may claim the standard deduction (same as US citizens/residents) on grants, scholarships, and employment income — an exceptional benefit not available under most other US tax treaties

• Exemption does not cover wages from US employment unrelated to the educational purpose

 

Article 22 — Payments Received by Professors, Teachers, and Research Scholars

• A professor, teacher, or research scholar who visits the other State for up to 2 years for the purpose of teaching or research at a recognized educational or research institution is exempt from tax in the host State on remuneration for such teaching or research

• Does not apply if the research is undertaken primarily for the private benefit of a specific person or persons

 

📌 Other Income

 

Article 23 — Other Income

• Income not covered elsewhere: taxable only in the residence State

• Exception: if the income arises in the other State, that State may also tax it

• Income attributable to a PE or fixed base: taxed under Article 7 or Article 15

 

📌 Limitation on Benefits

 

Article 24 — Limitation on Benefits

• Treaty benefits may be denied if the principal purpose of an arrangement was to obtain treaty benefits

• Competent authorities may deny benefits where it is established that the transaction was designed to abuse the Convention

• Note: the US–India treaty does not have a detailed LOB article like the US–Canada treaty; anti-abuse is addressed more broadly

 

📌 Relief from Double Taxation

 

Article 25 — Relief from Double Taxation

• United States: provides a foreign tax credit for Indian taxes paid on income from Indian sources, limited to the proportion of US tax attributable to that income

• India: provides a deduction or credit for US taxes paid on income from US sources

• Exempted income may still be taken into account in determining the applicable tax rate on remaining income (exemption with progression)

• US citizens resident in India: the US retains the right to tax on worldwide income, but India has primary taxing rights; the US credits Indian taxes paid

 

📌 Non-Discrimination & Procedure

 

Article 26 — Non-Discrimination

• Nationals of one State shall not be subjected to more burdensome taxation in the other State than nationals of that other State in the same circumstances

• Stateless persons resident in one State also protected

• PE of an enterprise of one State in the other State shall not be taxed less favourably than enterprises of the other State carrying on the same activities

• Deductibility of interest, royalties, and other disbursements paid to residents of the other State cannot be restricted solely on grounds of foreign residence

 

Article 27 — Mutual Agreement Procedure (MAP)

• Residents may present cases to the competent authority of their State within 3 years of first notification of the action resulting in taxation not in accordance with the Convention

• Competent authorities shall endeavour to resolve disputes by mutual agreement; may also resolve cases not specifically provided for in the Convention

• Competent authorities may communicate directly, including through a joint commission

 

Article 28 — Exchange of Information and Administrative Assistance

• Competent authorities shall exchange information necessary for carrying out the Convention and domestic tax laws

• Information received shall be treated as confidential and disclosed only to persons involved in tax administration and enforcement

• Each State shall use its best endeavours to collect taxes on behalf of the other State

 

Article 29 — Diplomatic Agents and Consular Officers

• Nothing in the Convention affects the fiscal privileges of diplomatic agents and consular officers under general rules of international law or special agreements

 

📌 Entry into Force & Termination

 

Article 30 — Entry into Force

• Signed: 12 September 1989 · Entered into force: 18 December 1990

• Effective for withholding taxes: income arising on or after 1 January 1991

• Effective for other taxes: taxable years beginning on or after 1 January 1991

 

Article 31 — Termination

• Convention remains in force indefinitely

• Either State may terminate by giving written notice through diplomatic channels on or before 30 June of any calendar year; Convention ceases to have effect from 1 January of the following year

• Minimum life: the Convention cannot be terminated before it has been in force for 5 years

 

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This summary is for general reference only. Always consult the full Convention text, the related Protocol, Exchanges of Notes, and Memorandum of Understanding for authoritative guidance. Rates shown are maximum treaty rates; lower domestic rates take precedence. The Convention may also be impacted by the OECD Multilateral Instrument (MLI).