DTAA Benefits: US-India Tax Treaty Explained for NRIs

A Double Tax Avoidance Agreement is a bilateral treaty between two countries that establishes rules for which country has the right to tax specific types of income, and how taxpayers can avoid being taxed twice on the same income.

The US-India DTAA was signed in 1989 and entered into force in 1991. It covers:

• Income from employment, business profits, and professional services
• Dividends, interest, and royalties
• Capital gains
• Pensions and social security
• Income of teachers, researchers, and students
• Relief from double taxation through tax credits

### The Two Methods of Relief

The DTAA provides two primary methods to eliminate double taxation:

1. Foreign Tax Credit (FTC): You pay tax on the income in both countries, but you claim a credit on your US return for the tax paid to India. This is the most common method used by NRIs who are US tax residents.

1. Treaty Exemption: Certain types of income are exempt from tax in one country under the treaty. You claim the exemption by filing Form 8833 (Treaty-Based Return Position Disclosure) with your US tax return.

### The Saving Clause — A Critical Limitation

Article 1, Paragraph 4 of the US-India DTAA contains a saving clause that preserves each country's right to tax its own residents and citizens. This means:

• The US can tax its residents (including NRIs on H-1B, green card holders, and US citizens) on their worldwide income, regardless of what the treaty says about the source country's taxing rights.
• The saving clause effectively overrides most treaty benefits for US tax residents on common income types like salary and business profits.

However, the saving clause has exceptions — certain treaty articles apply regardless of residency. These exceptions are where the DTAA delivers real value for NRIs.

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### Article 10 — Dividends

Under Article 10, dividends paid by a company in one country to a resident of the other country may be taxed in both countries, but the source country's tax is limited:

• 15 percent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 percent of the voting stock of the company paying the dividends;
• 25 percent of the gross amount of the dividends in all other cases.

For NRIs: If you receive dividends from Indian companies, India may withhold tax at up to 25% (though domestic Indian law may impose a lower rate). You report the dividend income on your US return and claim a Foreign Tax Credit for the Indian tax withheld.

### Article 11 — Interest

Interest income arising in one country and paid to a resident of the other may be taxed in both countries, but the source country's withholding is limited to 15%.

For NRIs: This article is relevant for NRO account interest. India typically withholds 30% TDS on NRO interest for NRIs under domestic law, but the DTAA limits this to 15%. To get the reduced rate, you must provide your Indian bank with a Tax Residency Certificate (TRC) from the IRS and a self-declaration under Form 10F.

NRE interest is tax-exempt in India, so this article does not affect NRE accounts — but NRE interest is still fully taxable in the US.

### Article 12 — Royalties and Fees for Technical Services

Royalties and fees for included services (technical, managerial, or consultancy services) may be taxed in both countries, with the source country limited to 15% withholding.

For NRIs: If you provide consulting or technical services to Indian clients from the US, India may withhold up to 15% on your fees. You can claim an FTC on your US return for the amount withheld.

### Article 20 — Teachers and Researchers

A teacher or researcher who visits the other country for the purpose of teaching or conducting research at a university or other educational institution is exempt from tax in the host country on their remuneration for teaching or research for a period of up to 2 years from the date of arrival.

This article is a saving clause exception — meaning it applies even to US residents. An Indian professor visiting a US university on an exchange program can claim exemption from US tax on their teaching income for up to 2 years.

To claim this benefit, file Form 8833 with your US return disclosing the treaty-based position.

### Article 21 — Students and Trainees

Payments received by a student or business apprentice who is present in the other country solely for education or training are exempt from tax in the host country, provided the payments arise from sources outside that country.

For NRIs: If you are an Indian student in the US and receive remittances from India for your living expenses or education, those payments are not taxable in the US under this article. This article is also a saving clause exception.

Limitations: This exemption applies only to payments from outside the US. Scholarships, fellowships, and stipends from US sources are subject to different rules and may be taxable.

### Article 25 — Relief from Double Taxation

This is the core article that establishes the Foreign Tax Credit mechanism. It states that the US shall allow its residents a credit against US tax for income tax paid to India, subject to the limitations of US domestic law (primarily IRC Section 904, which limits the FTC to the US tax attributable to the foreign-source income).

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### Claiming a Treaty Exemption (Form 8833)

If you are claiming that a specific type of income is exempt from US tax under the DTAA — for example, under Article 20 (teachers/researchers) or Article 21 (students) — you must disclose this position by filing Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).

Form 8833 requires:

• The specific treaty article you are relying on
• The applicable provision of the Internal Revenue Code being overridden
• A description of the income and the amount excluded
• An explanation of why you qualify for the treaty benefit

Failure to file Form 8833 when claiming a treaty benefit can result in a $1,000 penalty per failure (or $10,000 for C corporations).

### Claiming a Foreign Tax Credit (Form 1116)

For most NRIs who are US tax residents, the primary DTAA benefit comes through the Foreign Tax Credit — not treaty exemptions. The FTC is claimed on Form 1116, Foreign Tax Credit.

How the FTC works:

1. You report your worldwide income on your US return (Form 1040)
2. You calculate the US tax on your total income
3. You calculate the FTC limitation — the portion of your US tax attributable to foreign-source income:

FTC Limit = US Tax x (Foreign Source Income / Total Worldwide Income)

1. You claim a credit for the lesser of: (a) the actual tax paid to India, or (b) the FTC limitation

Example: You are an NRI with $150,000 in US salary and $5,000 in Indian NRO interest. India withheld 30% TDS ($1,500) on the NRO interest. Your US marginal tax rate is 24%, so the US tax on that $5,000 is $1,200. Your FTC is limited to $1,200 (the US tax on the foreign income). The excess $300 can be carried back 1 year or carried forward up to 10 years.

### FTC vs. Treaty Exemption — Which to Use?

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The DTAA caps the withholding tax that India can impose on certain types of income paid to US residents:

Important note: For royalties and fees for technical services, the Indian domestic rate (10% under Section 115A) is currently lower than the DTAA rate (15%). In these cases, the domestic rate applies because the DTAA rate is a ceiling, not a floor. You always get the benefit of the lower rate.

### How to Get the Reduced Rate in India

To claim the reduced DTAA withholding rate in India (e.g., 15% instead of 30% on NRO interest), you must provide your Indian bank or deductor with:

1. Tax Residency Certificate (TRC) — Obtained from the IRS by filing Form 8802 (Application for United States Residency Certification). The IRS issues Form 6166 as the TRC.
2. Form 10F — A self-declaration filed with the Indian deductor containing details like your tax identification number, residency status, and period of residency.
3. Self-declaration that you are the beneficial owner of the income and that the income is not attributable to a permanent establishment in India.

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### Scenario 1: NRO Interest Income

Rajesh is a green card holder in California. His NRO savings account earned Rs. 2,00,000 in interest during 2025. India withheld 30% TDS (Rs. 60,000).

• Rajesh reports the full Rs. 2,00,000 (converted to USD at the IRS average annual exchange rate) as taxable interest on his US return (Schedule B).
• He claims a Foreign Tax Credit on Form 1116 for the TDS paid (Rs. 60,000 converted to USD).
• If the US tax on that interest exceeds the Indian TDS, he pays the difference to the IRS. If the TDS exceeds the US tax, the excess carries forward.
• Had Rajesh provided Form 6166 and Form 10F to his bank, the TDS would have been 15% instead of 30%, and there would be less excess credit to carry forward.

### Scenario 2: NRE Interest Income

Priya is on an H-1B visa and has Rs. 10,00,000 in an NRE fixed deposit earning 7% interest (Rs. 70,000).

• NRE interest is tax-exempt in India — no TDS is withheld.
• However, Priya is a US tax resident, so the NRE interest is fully taxable in the US.
• The DTAA does not help here because no Indian tax was paid. There is no Foreign Tax Credit to claim.
• This is one of the most common surprises for NRIs. Learn more about NRE taxation.

### Scenario 3: Rental Income from Indian Property

Amit owns an apartment in Mumbai that generates Rs. 30,000/month in rent. Indian TDS of 30% is deducted by the tenant.

• Amit reports the full annual rental income (Rs. 3,60,000) on his US return (Schedule E), converted to USD.
• He can claim deductions for expenses (property tax, maintenance, insurance, depreciation).
• He claims a Foreign Tax Credit on Form 1116 for the Indian TDS paid on the rental income.
• Article 6 of the DTAA allows India to tax income from immovable property — but the US still taxes it as worldwide income. The FTC prevents double taxation.
• Read our detailed guide on US tax on Indian rental income.

### Scenario 4: Capital Gains on Indian Property Sale

Sunita sold her apartment in Pune for Rs. 1,20,00,000. She paid long-term capital gains tax of Rs. 3,00,000 in India.

• Sunita reports the capital gain on her US return (Schedule D / Form 8949), calculated using USD amounts at the exchange rate on the date of purchase and date of sale.
• She claims a Foreign Tax Credit for the Rs. 3,00,000 Indian capital gains tax.
• The DTAA does not reduce India's right to tax capital gains on immovable property (Article 13), but the FTC ensures she is not taxed twice.

### Scenario 5: Pension Income

Vikram retired from an Indian company and receives a monthly pension of Rs. 50,000. He is now a US citizen.

• Under Article 19 of the DTAA, private pensions are generally taxable only in the country of residence — meaning the US.
• India may still withhold TDS on the pension. Vikram should provide his Indian employer with Form 6166 to claim treaty relief in India.
• If India still withholds, Vikram can claim an FTC on his US return.
• Government pensions (from Indian government service) have different rules under Article 19(2) — they may be taxable in India.

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### Limitation on Benefits (LOB) — Article 24A

The US-India DTAA includes a Limitation on Benefits article designed to prevent "treaty shopping" — where residents of third countries route income through one of the treaty countries to claim benefits they are not entitled to.

To claim DTAA benefits, you must be a qualified person — generally a bona fide resident of one of the treaty countries who meets specific tests (e.g., ownership, base erosion, active trade or business).

For individual NRIs, the LOB is rarely an issue — you are a qualified person if you are a genuine resident of the US or India. The LOB primarily affects corporations and entities.

### The Saving Clause Revisited

Remember: the saving clause allows each country to tax its own residents as if the treaty did not exist, except for benefits under specific articles. The following articles survive the saving clause:

• Article 20 — Teachers and researchers (2-year exemption)
• Article 21 — Students and trainees
• Article 25 — Relief from double taxation (FTC)
• Article 27 — Exchange of information

For most NRIs who are US tax residents, the practical impact is that you cannot use the DTAA to exempt salary or business income from US tax. Your relief comes through the Foreign Tax Credit mechanism under Article 25.

### Transfer Pricing and Permanent Establishment

If you are an NRI with business in both countries, Article 5 (PE rules) determines where you have a taxable presence, while Article 9 (transfer pricing) decides how profits are split between related entities on an arm’s-length basis. Together, they govern cross-border business taxation and usually require professional advice.

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1. Determine your tax residency. If you are a US tax resident (citizen, green card holder, or meet the Substantial Presence Test), you report worldwide income on Form 1040.

1. Identify the income that was taxed in India. Gather TDS certificates (Form 16A), capital gains tax receipts, advance tax challans, and your Indian income tax return.

1. Convert Indian taxes to USD. Use the IRS average annual exchange rate for the tax year (published at irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates) or the exchange rate on the date the tax was paid — be consistent with your method.

1. Complete Form 1116 for each applicable income category:

• Passive category — Interest, dividends, rents, royalties
• General category — Salary, business profits, fees for services
• Each category is a separate Form 1116

1. If claiming a treaty exemption, complete Form 8833 and attach it to your return.

1. Report the Foreign Tax Credit on Schedule 3, Part I, Line 1 of Form 1040, which flows to Form 1040, Line 21.

1. Keep records of all Indian tax documents, exchange rate calculations, and treaty positions for at least 6 years (the statute of limitations for international information returns).

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### What is the DTAA between US and India?

The US-India Double Tax Avoidance Agreement is a bilateral tax treaty that establishes rules for how income is taxed when a taxpayer has connections to both countries. It prevents double taxation primarily through the Foreign Tax Credit mechanism and, in specific cases, through treaty exemptions for certain income types.

### Can I avoid paying US tax on Indian income using the DTAA?

Generally, no — if you are a US tax resident. The DTAA's saving clause allows the US to tax its residents on worldwide income. However, you can avoid double taxation by claiming a Foreign Tax Credit on Form 1116 for taxes paid to India. Certain categories (teachers, students) may qualify for specific exemptions.

### How do I claim Foreign Tax Credit for Indian TDS?

File Form 1116 with your US tax return. Report the Indian income in the appropriate category (passive or general), enter the tax paid to India (converted to USD), and calculate the credit limitation. The credit offsets your US tax on the foreign income.

### Do I need to file Form 8833 to claim DTAA benefits?

You need Form 8833 only if you are claiming a treaty exemption — that is, excluding income from US taxation based on a treaty article. If you are claiming a Foreign Tax Credit (the most common form of relief), Form 8833 is not required. However, disclosure is always recommended for treaty-based positions.

### What is the DTAA rate for NRO interest?

The DTAA limits India's withholding on interest paid to US residents to 15%, compared to the domestic rate of 30%. To get the reduced rate, provide your Indian bank with Form 6166 (US TRC) and Form 10F.

### Can NRIs claim DTAA benefits on NRE interest?

The DTAA is not relevant for NRE interest because India does not tax NRE interest for NRIs — there is no double taxation to avoid. However, NRE interest is fully taxable in the US, and since no Indian tax was paid, there is no Foreign Tax Credit available.

### How does the DTAA apply to Indian rental income?

Article 6 of the DTAA allows India to tax income from immovable property located in India. The US also taxes it as part of your worldwide income. You avoid double taxation by claiming a Foreign Tax Credit on Form 1116 for the Indian tax paid on the rental income. Read our detailed guide on US tax on Indian rental income.

### What is the statute of limitations for DTAA-related claims?

Under US tax law, you generally have 3 years from the date a return is filed to amend it and claim a missed Foreign Tax Credit. The IRS assessment period may extend to 6 years only if there is a substantial omission of income (more than 25%). Separate international information returns (such as FBAR) have their own recordkeeping requirement of at least 5 years, so taxpayers should generally retain supporting records for at least 5–6 years.

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