Detailed Explanation
How it works
Under Section 90, a taxpayer can adopt the more beneficial of the Act or the treaty, claim foreign tax credit, and access reduced withholding rates with a Tax Residency Certificate.
How relief actually flows
India's treaties follow two relief mechanisms: the exemption method (rare) and the credit method (standard) — Indian residents pay Indian tax on global income and credit the foreign tax paid, capped at the Indian tax on that income (Rule 128, Form 67 before the return). For inbound payments, the treaty caps Indian withholding: royalties/FTS commonly at 10%, dividends 5-15%, interest 5-15% depending on the treaty.
Worked example
An Indian company pays US$-equivalent Rs.1 crore in royalty to a US licensor. Domestic rate: 20% plus surcharge/cess under Section 115A. India-US treaty: 15%. With a TRC, electronic Form 10F and a no-PE declaration on file, the payer withholds Rs.15,00,000 under Section 195 read with Section 90(2) — the treaty applies because it is more beneficial. Form 15CB certifies the position before remittance.
The anti-abuse overlay
Treaty benefits now pass through the MLI's principal-purpose test for most Indian treaties — arrangements whose principal purpose is obtaining treaty benefit can be denied it. Substance documentation (real management, staff, premises in the residence state) has become part of the withholding file, not just a litigation afterthought. Section 90(4)-(5) make the TRC mandatory and Form 10F its Indian companion. From 1 April 2026 the treaty-override architecture continues under the Income-tax Act 2025's equivalents of Sections 90/90A.
Frequently asked questions
What is a DTAA?
A treaty between two countries that prevents the same income from being taxed twice and allocates taxing rights.
How do I claim DTAA benefits?
By furnishing a Tax Residency Certificate and Form 10F, and adopting the more beneficial of the Act or treaty.
This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.