Yes, the India–US tax treaty has been in force since 1990. Formally the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, it caps the withholding tax each country can charge on cross-border dividends, interest, royalties, and certain service fees, and it gives residents of either country a way to avoid being fully taxed twice on the same income.1Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India It has some quirks worth knowing before you rely on it.
What the Treaty Covers and What It Doesn’t
The treaty applies to anyone who is a tax resident of the U.S., India, or both. On the U.S. side it covers federal income tax; on the Indian side, income tax and surtax. It does not cover U.S. state income taxes or India’s Goods and Services Tax.
State taxes are a real trap. The IRS notes that some states don’t honor federal tax treaties, so income the treaty exempts federally may still be taxed by the state where it’s sourced.2Internal Revenue Service. United States Income Tax Treaties – A to Z Check the specific state’s rules before assuming treaty relief flows through.
Why U.S. Citizens Still Owe U.S. Tax: The Saving Clause
Article 1, Paragraph 3 contains a “saving clause” that lets each country tax its own citizens and residents as if the treaty didn’t exist.3Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 1 So a U.S. citizen living in India who earns Indian consulting fees still owes U.S. tax on that income, even if the treaty appears to give India primary taxing rights.
A few articles survive the saving clause: the double-taxation relief provisions (Article 25), nondiscrimination (Article 26), and the mutual agreement procedure (Article 27). People who are neither citizens nor permanent residents of a country can also claim benefits under the articles covering government service pay, student payments, and professor or researcher exemptions.4Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 1 Paragraph 4
Withholding Rate Caps
Without the treaty, the default U.S. withholding rate on payments to foreign persons is 30%. The treaty lowers that ceiling for several types of income, though the rates are noticeably higher than in many other U.S. treaties.
Dividends
Dividend withholding is unusually steep under this treaty. A company beneficial owner that holds at least 10% of the paying company’s voting stock is capped at 15%. Everyone else, including individual investors, faces a 25% cap.5Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 10 Dividends from a Regulated Investment Company (the structure many U.S. mutual funds use) always get the 25% rate regardless of ownership percentage, and Real Estate Investment Trust dividends have their own restrictions.
Interest
Interest is capped at 10% when it’s paid on a loan from a bank or similar financial institution, and 15% otherwise.6Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 11 A bank deposit or institutional loan gets the lower rate; a private loan between individuals or non-bank entities gets the higher one.
Royalties and Fees for Included Services
Article 12 handles royalties and technical service fees together, which is unusual. “Fees for included services” covers payments for technical or consulting work where the provider transfers usable technical knowledge, skill, or processes to the recipient. The test is whether the work “makes available” technical know-how that the recipient can use independently afterward.7Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 12
The rates:
- 15% of the gross amount for royalties on intellectual property (copyrights, patents, trademarks, secret formulas) and for fees for included services.
- 10% of the gross amount for royalties on industrial, commercial, or scientific equipment, and for fees for services ancillary to equipment use.
If a U.S. software company sends engineers to train an Indian client’s staff and that training transfers reusable technical knowledge, the payment qualifies as fees for included services and gets taxed at source in India. Routine services that don’t transfer know-how generally fall under the business profits article and aren’t taxed at source unless there’s a permanent establishment.
Business Profits and Real Property
A company’s business profits are taxed only in its home country unless it operates through a permanent establishment in the other country, in which case the host country taxes the profits attributable to that establishment. Income from real property is taxed where the property sits, and capital gains follow each country’s domestic rules, so neither country gives up its right to tax gains on assets located within its borders.8Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 13
Students, Scholars, and Professors
The treaty provides real breaks for people who cross borders for education or research, and these sit among the exceptions to the saving clause.
An Indian student or apprentice in the U.S. isn’t taxed on money sent from India for living expenses, tuition, or training. The exemption runs for whatever period is reasonable to complete the education, and while in the U.S. the student gets the same tax relief on grants, scholarships, and employment income that a U.S. resident would receive.9Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 21
Professors, teachers, and researchers visiting the other country to teach or conduct research at a recognized educational institution are exempt from tax on that pay for up to two years. The research exemption applies only to work in the public interest, not research primarily benefiting a private company.10Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 22
How to Claim the Benefits
If You’re a U.S. Resident: Form 8833
If you take a position on your U.S. return based on the treaty, such as claiming a reduced rate or an exemption on Indian-source income, you generally have to file Form 8833 (Treaty-Based Return Position Disclosure) with your annual return.11Internal Revenue Service. About Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) The penalty for skipping it when required is $1,000 per failure, or $10,000 for a C corporation.12Office of the Law Revision Counsel. 26 USC 6712 – Failure to Disclose Treaty-Based Return Positions The IRS can waive the penalty for reasonable cause and good faith, but that’s not something to plan around.
If You’re an Indian Resident: TRC and Form W-8BEN
Indian residents claiming treaty benefits must obtain a Tax Residency Certificate from Indian tax authorities. Under Section 90 of India’s Income Tax Act, the certificate is mandatory, and benefits can be denied without it. If the certificate doesn’t contain all the required details, Form 10F may also be required.
For U.S.-source income like dividends or interest, give the U.S. payer a Form W-8BEN before payment. It establishes you as a foreign person and beneficial owner and claims the treaty rate.13Internal Revenue Service. Instructions for Form W-8BEN Without a valid W-8BEN, the payer must withhold at the 30% default. A W-8BEN generally stays valid through the end of the third calendar year after you sign it, so one signed in June 2026 expires on December 31, 2029, unless your circumstances change (moving out of India, for example).14Internal Revenue Service. Instructions for Form W-8BEN (10/2021)
How the Treaty Actually Prevents Double Taxation
The mechanism is different on each side. U.S. residents use the foreign tax credit: Indian income tax paid on Indian-source income offsets U.S. tax on that same income, dollar for dollar, up to the amount of U.S. tax owed on it. The credit can’t push your U.S. tax below zero. Indian residents get a deduction from Indian tax equal to the U.S. income tax paid, and India may exempt certain income entirely when the treaty gives the U.S. primary taxing rights.15Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 25
When that isn’t enough, either country’s tax authority can invoke the Mutual Agreement Procedure under Article 27, letting the two governments negotiate directly. Taxpayers can ask their own government to open the process.16Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India – Article 27 It’s slow and there’s no guarantee of resolution, but it’s the formal safety valve when normal filing leaves double taxation on the table.
The Social Security Gap
One important boundary: this treaty covers income taxes, not Social Security. The U.S. has totalization agreements with about 30 countries that stop workers from paying Social Security taxes to both governments on the same wages. India is not one of them.17Social Security Administration. U.S. International Social Security Agreements
The result is real double taxation on the payroll-tax side. A U.S. employer sending an American worker to India, or an Indian employer sending a worker to the U.S., often owes contributions in both systems on the same earnings. The U.S. system covers American citizens and resident aliens working abroad for American employers no matter how long the assignment lasts, and it also covers anyone working inside the U.S. regardless of citizenship. Contributions to the foreign system often produce no benefit if the worker doesn’t stay long enough to vest.17Social Security Administration. U.S. International Social Security Agreements
The Treaty Doesn’t Cancel Your Foreign-Account Reporting
Reduced tax under the treaty doesn’t reduce your U.S. reporting obligations. These apply to U.S. citizens, green card holders, and U.S. tax residents regardless of where they live, and the penalties are harsh.
FBAR (FinCEN Form 114)
If you have a financial interest in or signature authority over Indian bank accounts, fixed deposits, or other financial accounts whose combined value exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts electronically with FinCEN.18Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) The $10,000 threshold aggregates all foreign accounts worldwide, not just Indian ones. Non-willful civil penalties can exceed $16,000 per account per year. Willful penalties reach the greater of roughly $165,000 or 50% of the account balance, and criminal penalties can include fines up to $500,000 and imprisonment.
FATCA (Form 8938)
Separately, FATCA requires reporting specified foreign financial assets on Form 8938, filed with your tax return. The thresholds depend on where you live and your filing status:19Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
- Living in the U.S., single or married filing separately: total foreign assets over $50,000 on the last day of the year, or $75,000 at any point during the year.
- Living in the U.S., married filing jointly: over $100,000 at year-end, or $150,000 at any point.
- Living abroad, single or married filing separately: over $200,000 at year-end, or $300,000 at any point.
- Living abroad, married filing jointly: over $400,000 at year-end, or $600,000 at any point.
FBAR and Form 8938 are separate filings with different thresholds, deadlines, and agencies, and you may owe both. Indian bank accounts, PPF balances, and National Pension System holdings can trip both requirements at once.