How the DTAA TDS Rate Actually Works

There is no single 'DTAA rate' — the applicable rate is the lower of the domestic Act rate or the specific rate in the relevant treaty article, and it differs by country and income type.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

Lower of Act rate or treaty article rate (varies by country)

Section & code

Section 393(2), read with the applicable DTAA

Forms typically needed:

Form 10F TRC from payee's country Form 15CA

Cross-Border TDS Decision Helper

Nature of payment

Payee has valid PAN?

TRC + Form 41 furnished?

Indicative Act rate

20%

Domestic Act rate under Section 393(2) for royalty/FTS to a non-resident non-company — doubled from 10% by Finance Act 2023 (effective 1 April 2023), unchanged since. Classify carefully: royalty and FTS have different treaty definitions.

Without a TRC and Form 41, the treaty rate can't be applied — the Act rate above governs until documentation is furnished.

This is a decision aid, not a filing determination — always confirm classification and the exact treaty article with a professional before remitting.

Why 'the DTAA rate' is a misleading phrase

Practitioners and clients often ask for 'the DTAA rate' as if it were a single number, similar to asking for 'the GST rate.' It isn't. Each of India's roughly 90+ tax treaties has its own separate articles covering royalty, fees for technical services, interest, dividends, and capital gains — each potentially specifying a different rate, and each treaty negotiated independently with that specific country. The India-US treaty's royalty rate, the India-Singapore treaty's royalty rate, and the India-Mauritius treaty's royalty rate are three different numbers, not one 'DTAA rate.'

The correct process is always: identify the payee's country of tax residence, identify the specific treaty between India and that country, locate the article covering the exact income category in question, and read the specific rate (or rate cap) in that article — then compare it against the domestic Act rate and apply whichever is lower.

The comparison is always 'lower of', never automatic treaty application

A DTAA doesn't override the domestic rate by default — the taxpayer (or the deductor, on the payee's behalf) elects to apply the treaty provision when it's more beneficial, which requires furnishing specific documentation. If the domestic rate happens to be lower than the treaty rate for a given income category (uncommon, but not impossible for certain categories), the domestic rate can simply be applied without invoking the treaty at all.

What documentation actually 'unlocks' the treaty rate

To apply a treaty rate, the deductor generally needs the payee to furnish a Tax Residency Certificate (TRC) from their home country's tax authority, confirming their residency status for treaty purposes, along with Form 10F providing specified additional particulars (like Tax Identification Number and period of residency) not always captured on the TRC itself. Some treaties, or specific categories of payee, may also require a declaration confirming no Permanent Establishment in India.

Without this documentation on file before the remittance, the deductor cannot safely apply the lower treaty rate — defaulting to the domestic Act rate is the only defensible position, even if the treaty would otherwise have permitted something lower.

A practical process for any cross-border payment

Confirm the payee's country of tax residence — not nationality, not billing address.
Identify the specific DTAA article covering this income category (royalty, FTS, interest, dividend, capital gains, or 'other income').
Compare the treaty rate against the domestic Section 393(2) rate for that category.
Collect TRC, Form 10F, and any required no-PE declaration before applying the lower rate.
Retain all documentation — it's the deductor's evidence if the classification or rate is later questioned.

Worked example

Royalty payment to a Netherlands-resident licensor

An Indian company pays royalty to a Netherlands-resident IP owner. The domestic Section 393(2) rate is 20%. The India-Netherlands DTAA's royalty article specifies a cap of 10% (illustrative — always verify the current article text). Since 10% is lower than 20%, the company may apply 10% TDS instead — but only once the Netherlands licensor furnishes a valid TRC and Form 10F. Without that documentation on file at the time of remittance, the 20% domestic rate applies regardless of what the treaty would otherwise have permitted.

Common mistakes & litigation traps

Assuming a round figure like 10% applies to every DTAA

Treaty rates genuinely vary by country and by income category — never assume a rate without reading the specific article for the specific treaty in question.

Applying the treaty rate without TRC/Form 10F on file

Documentation must exist before the remittance, not be promised for later — a missing TRC at the time of deduction can't be retroactively cured.

Confusing the treaty's general 'other income' article with a specific category's article

Royalty, FTS, interest, dividends and capital gains typically each have their own dedicated article with a different rate — check the correct one, not a general catch-all clause.