How to Apply a DTAA Rate for TDS

Applying a lower DTAA rate requires collecting the payee's TRC and Form 10F before the remittance, identifying the correct treaty article, and documenting the rationale — not a post-facto adjustment.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

Depends on the specific treaty article

Section & code

Section 393(2), read with the applicable DTAA

Forms typically needed:

TRC Form 10F Form 15CA Form 15CB

Step 1: Classify the payment correctly first

Before even looking at the treaty, classify the payment under the domestic Act — royalty, FTS, interest, dividend, capital gains, or business income. This matters because the DTAA's article structure typically mirrors these categories, and choosing the wrong domestic category can lead to checking the wrong treaty article altogether, producing an incorrect rate even if every subsequent step is done correctly.

Step 2: Identify the payee's treaty country of residence

The payee's tax residency — not citizenship, not the invoicing address, not the bank account location — determines which treaty applies. A US citizen who has become a tax resident of the UAE is covered by the India-UAE treaty for this purpose, not the India-US treaty. This is precisely why the TRC (issued by the tax authority of the country of residence) is the foundational document — it's the payee's own government confirming residency for treaty purposes.

Step 3: Read the specific article, not a summary or a general assumption

Locate the actual treaty text (available on the Income Tax Department's website under the DTAA section) and read the specific article covering the payment category identified in Step 1. Note any conditions attached — some articles include a 'make available' clause (for FTS), a beneficial-ownership requirement (for dividends/royalty), or a minimum shareholding threshold (for participation-exemption-style dividend rates). Missing a condition can mean the lower rate doesn't actually apply even though the headline percentage looked favourable.

Step 4: Collect documentation before, not after, the remittance

Request the TRC and Form 10F from the payee as part of onboarding the transaction — not after the invoice is already due. A no-permanent-establishment declaration may also be needed for business-income or FTS claims. Missing documentation at the time of deduction cannot be cured retroactively; the domestic rate stands for that payment even if the correct paperwork arrives a week later.

Step 5: Document the rationale and file the compliance forms

Keep a short written record — the classification decision, the treaty article relied upon, and copies of the TRC/Form 10F — in the client or transaction file. File Form 15CA (and Form 15CB if the aggregate threshold is crossed or the CA needs to certify the computation) reflecting the treaty-based rate actually applied, supported by this documentation.

Worked example

Applying a treaty rate to an interest payment to a Japanese lender

An Indian company pays interest to a Japanese bank on a foreign-currency loan. Step 1: classify as interest income. Step 2: confirm the lender is Japan tax-resident via TRC. Step 3: read the India-Japan DTAA's interest article for the specific rate cap applicable to bank lenders. Step 4: collect the TRC and Form 10F before the first interest payment is due. Step 5: apply the treaty rate, file Form 15CA/15CB, and retain the documentation file for the life of the loan, since interest payments typically recur over multiple years.

Common mistakes & litigation traps

Applying a treaty rate based on the payee's nationality, not residency

Tax treaties operate on tax residency, determined by that country's domestic rules — not citizenship or business location.

Missing a conditional requirement buried in the article

Beneficial-ownership, minimum-shareholding, or 'make available' conditions can disqualify an otherwise-attractive treaty rate — read the full article, not just the headline percentage.

Treating documentation as a formality that can be sorted out later

TRC and Form 10F must exist at the time of deduction — there's no retroactive cure if they're missing when the payment is processed.