India-US Double Tax Treaty (DTAA) — Complete Guide for US Companies with Indian Subsidiaries (2026)

By CA Rohit Lohade, KRPR & Associates  ·  Updated June 2026  ·  16 min read

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1. What Is the India-US DTAA and Why Is It Different from Other Indian Tax Treaties?

The India-US Double Taxation Avoidance Agreement (DTAA) was signed on 12 September 1989, entered into force on 18 December 1990, and was last amended by a Protocol in 2000. It remains in force as of June 2026 with no material amendments since the 2000 Protocol — notably, the US has not adopted the OECD MLI, unlike the UK and EU countries.

Two features make the India-US DTAA distinctly different from other Indian tax treaties — and both are commercially significant for US companies with Indian subsidiaries:

Feature	India-US DTAA	India-UK / India-SG / India-Australia DTAAs
Fees for services concept	Uses Fees for Included Services (FIS) — a narrower definition that requires services to make available technical know-how. Pure management and advisory fees typically do not qualify as FIS.	Use Fees for Technical Services (FTS) — but also have the "make available" test and the India-UK DTAA expressly excludes managerial services. In practice, management fees are zero withholding under these treaties too if no PE exists — same outcome as the India-US DTAA.
US Saving Clause	Article 1 preserves the US's right to tax its citizens and corporations on worldwide income regardless of the treaty. Relief is given through foreign tax credits, not treaty exemptions.	No equivalent saving clause in most other Indian treaties.

Understanding these two differences is more valuable than memorising withholding tax rates — they determine whether India can tax your intercompany charges at all.

→ US company India subsidiary setup — full guide

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2. What Are the Withholding Tax Rates Under the India-US DTAA?

Income type	India-US DTAA rate	Domestic rate (no treaty)	Treaty Article
Dividends — substantial holding (US parent holds ≥10% voting stock)	15%	~20.8%	Article 10(2)(a)
Dividends — portfolio/other (US parent holds <10% voting stock)	25%	~20.8%	Article 10(2)(b)
Interest	10% for loans granted by a bank, similar financial institution or insurance company; 15% in other cases	Domestic rate depends on the instrument and lender	Article 11
Royalties — literary/artistic/scientific copyright, patents, trademarks	15%	~20.8%	Article 12(2)(a)
Royalties — equipment rental; FIS ancillary to royalties	10%	~20.8%	Article 12(2)(b)
Fees for Included Services (FIS) — services that make available technical know-how	15% (standalone) or 10% (ancillary to royalty)	~20.8%	Article 12(4)
Management fees / advisory fees / coordination charges — not qualifying as FIS	0% — Business Profits, not taxable if no PE	~20.8% under domestic law	Article 7
Standard end-user SaaS access — no copyright rights or technical know-how transferred	May be treated as Business Profits; a nil-withholding result requires the applicable treaty and no PE in India	Facts and domestic-law position must also be checked	Applicable treaty + Engineering Analysis
Capital gains on Indian shares	Both countries may tax under domestic law — no treaty cap	10–20% depending on holding period	Article 13

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3. What Is the Fees for Included Services (FIS) Concept — and Why Does It Matter?

This is the most commercially important and most misunderstood aspect of the India-US DTAA. Most guides treat US-to-India service payments as automatically subject to 15% withholding. That is wrong — and the error can cost US companies significant unnecessary tax.

What is FIS under the India-US DTAA?

Under Article 12(4) of the India-US DTAA and the accompanying Memorandum of Understanding (MoU) signed on 12 September 1989, Fees for Included Services means payments for technical or consultancy services that either:

• (a) Make available to the recipient technical knowledge, experience, skill, know-how, or processes — meaning the Indian subsidiary can apply that knowledge independently after the service ends, without recurring assistance from the US provider; OR
• (b) Are ancillary and subsidiary to the enjoyment of a right, property or information for which a royalty is charged under Article 12(3)

What does NOT qualify as FIS?

Service type	Qualifies as FIS?	Why
Management fees (CEO oversight, governance, group HR)	No — Business Profits	No technical knowledge transferred. Calcutta High Court confirmed in Timken (2016): advisory services that transfer only commercial information are not FIS.
Advisory or consultancy fees	No — Business Profits	Calcutta High Court, Timken case: "consideration for rendering advisory services cannot be treated as Fees for Included Services under Article 12(4)(b)"
IT support / helpdesk services	No — Business Profits	ITAT ruling confirmed: training and supporting users on software does not make available technical knowledge. "Imparting training or educating a person with respect to the functionality of software does not amount to rendering of technical service."
Marketing services	No — Business Profits	No transfer of technical know-how. FIS requires the recipient to be able to independently replicate the technical skill post-engagement.
Software development that delivers a custom product	Likely yes — FIS or Royalty	If the US company develops software and the Indian entity can use the technical design independently, this may make available know-how.
Technical training that equips the Indian team permanently	Likely yes — FIS	If the Indian entity can independently replicate the technical process after training, the make-available test is met.
Reimbursement of costs on cost-to-cost basis (no markup)	No	ITAT Delhi, Invesco case (2025): IT support services recharged at cost without markup are not income — not taxable as FIS regardless of make-available test.

→ Transfer pricing for US-India intercompany arrangements — KRPR

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4. How Does a US Company Claim DTAA Benefits in India?

Step	Action	Who	Timing
1	Obtain Form 6166 (Tax Residency Certificate) from the IRS confirming the US company is a US tax resident	US parent — apply to IRS	Allow 4–6 weeks for IRS processing. Renew annually.
2	File Form 41 electronically on India's Income Tax e-filing portal — replaces Form 10F under the Income Tax Act 2025, effective 1 April 2026. Contains US company's EIN, period of residency, nature of income, and address. No Indian PAN required for non-residents.	US parent — e-filed on Income Tax India portal	Before the payment is made. File once per financial year per income stream.
3	Provide beneficial ownership declaration — confirming the US parent is the beneficial owner, not a conduit	US parent — letter to Indian subsidiary	Before the payment is made
4	Where applicable, the Indian subsidiary obtains Form 15CB from a Chartered Accountant. It is generally required where taxable remittances or their aggregate exceed INR 5 lakh during the financial year and an alternative Assessing Officer certificate or order is not available.	Indian subsidiary + CA	Check before remittance
5	The Indian subsidiary checks whether Form 15CA applies and files the appropriate part based on the nature and chargeability of the remittance.	Indian subsidiary + CA	Before remittance, where applicable
6	Bank remits payment (net of applicable withholding) to US parent's account	Bank	After completing the applicable remittance documentation
7	US parent claims Foreign Tax Credit (Form 1116 or Form 1118) for Indian TDS against US federal tax liability	US parent — US tax return	Annual US filing

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5. What Creates a Permanent Establishment in India for a US Company?

PE risk is critically important — if a PE of the US parent is found to exist in India, all profits attributable to it are taxable in India at the full foreign company rate of up to 40% plus surcharge and cess.

What creates a fixed-place PE under Article 5?

Situation	PE risk?	Notes
US company's Indian subsidiary (wholly owned Pvt Ltd)	No — by itself	A subsidiary is a separate legal entity. It does not create a PE of the US parent automatically.
US company has an office, branch, or factory in India	Yes — fixed place PE	Any fixed place from which business is wholly or partly carried on creates a PE.
Construction / installation project in India lasting more than 120 days	Yes — construction PE	Note: the India-US DTAA threshold is 120 days — shorter than many other treaties (typically 6–12 months). Many US companies are caught out by this.
US personnel furnish services in India	Potential service PE	A service PE may arise when services continue for more than 90 days within any 12-month period. For services furnished to an associated enterprise, the treaty can apply without the usual 90-day threshold. Track personnel, recipient and days carefully.
Indian subsidiary employee who habitually concludes contracts on behalf of the US parent	Yes — dependent agent PE	The most common and most overlooked PE risk. See detailed explanation below.

The dependent agent PE — the most common mistake US companies make

A dependent agent PE may arise where a person in India, other than an independent agent acting in the ordinary course of business, habitually exercises authority to conclude contracts on behalf of the US parent, or habitually maintains a stock of goods from which deliveries are regularly made for the US parent. This is separate from and in addition to the Indian subsidiary.

Common situations that create a dependent agent PE:

• Indian subsidiary sales team signs sales contracts in the name of the US parent (not in the name of the Indian subsidiary)
• Indian subsidiary employees negotiate and finalise commercial terms on behalf of the US parent with Indian customers or suppliers
• US parent's products are sold in India through the Indian subsidiary acting as a commission agent, where the subsidiary habitually secures orders for the US parent

→ PE risk management and intercompany structuring — KRPR

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6. Real-World Examples — How the DTAA Applies to Specific US-India Payments

Here is how the India-US DTAA and Indian withholding tax rules apply to the most common payment scenarios between US companies and their Indian subsidiaries — including the specific US tech platforms your Indian team uses every day.

Example A — US parent pays dividend to its Indian subsidiary's profits back to the US

Example B — US parent charges management fees to Indian subsidiary

Example C — Indian subsidiary pays for LinkedIn Premium / Sales Navigator (Microsoft/LinkedIn — US company)

Example D — Indian subsidiary pays for ChatGPT (OpenAI) or Claude (Anthropic) subscriptions

Example E — Indian subsidiary pays for Salesforce or Microsoft 365 (US companies)

Example F — US parent licences IP or software to Indian subsidiary

Summary — withholding tax and compliance at a glance

Payment	DTAA treatment	Withholding rate	GST (RCM)	Form 41 + TRC needed?
Dividends (≥10% holding)	Article 10 — 15%	15%	No	Yes
Dividends (<10% holding)	Article 10 — 25%	25%	No	Yes
Interest	Article 11	10% for bank/similar financial institution/insurance-company loans; 15% in other cases	18% RCM, subject to the nature of the transaction	Yes
Software royalty (IP transferred)	Article 12 — 15%	15%	18% RCM	Yes
Management fees (no make-available)	Article 7 — Business Profits	0% if no PE	18% RCM	Form 15CA applicability must be checked separately
Standard SaaS subscriptions	May be Article 7 Business Profits where no copyright rights or technical know-how are transferred; apply the treaty of the actual contracting entity	Potentially nil if the classification is supported and the non-resident has no PE	18% RCM, subject to the facts	Check Form 15CA applicability and whether Form 15CB is required separately
Technical training that transfers lasting know-how	Article 12(4) — FIS at 15%	15%	18% RCM	Yes

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7. India-US DTAA vs India-UK DTAA — Key Differences for Intercompany Charges

If you manage subsidiaries in both India and the UK, understanding how these two treaties differ is critical — the same intercompany charge can have completely different withholding consequences depending on which treaty applies.

Charge type	India-US DTAA	India-UK DTAA
Management fees	0% — not FIS (make-available test not met)	0% — managerial services expressly excluded from FTS in Article 13(4), and make-available test also not met. Same outcome, stronger protection.
Advisory / consultancy fees	0% — not FIS (Timken ruling, Calcutta HC 2016)	0% — not FTS if no make-available (Mumbai ITAT 2024, Buro Happold 2022). Both treaties reach same outcome — India-UK has additional express managerial services exclusion.
SaaS subscriptions	0% — not royalty, not FIS	0% — not royalty, not FTS (Engineering Analysis applies to both)
Software IP licence	15% — Article 12(2)(a) royalty	15% — Article 13 royalty
Technical training (make-available)	15% — FIS Article 12(4)	15% — FTS Article 13
Dividends	15% (≥10%) or 25% (<10%)	15% (flat)
PE — construction threshold	120 days	9 months
PE — services threshold	90 days	90 days
MLI / anti-avoidance	No MLI — US has not adopted it. No PPT.	MLI applies — PPT can deny treaty benefits if no genuine substance

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8. What Most DTAA Guides Don't Tell US Companies About the India-US Treaty

The US has not adopted the OECD MLI — which matters for anti-avoidance

Unlike the UK, Germany, Singapore, and most EU countries, the United States has not signed or ratified the OECD Multilateral Instrument (MLI). This means the Principal Purpose Test (PPT) — which can deny DTAA benefits where one purpose of a transaction is to access treaty rates — does not apply to the India-US DTAA. However, India's domestic GAAR (General Anti-Avoidance Rules) apply independently and can be invoked where arrangements lack commercial substance. The CBDT confirmed in a 31 March 2026 notification that GAAR does not apply to investments made before 1 April 2017 — but applies to all new arrangements. US companies should document commercial substance in their India structures regardless of MLI's non-application.

The dividend rate for under-10% holdings (25%) is worse than the domestic rate (20.8%)

This catches many US investors by surprise. For portfolio holdings in Indian companies — US private equity funds, US institutional investors, US minority shareholders — the India-US DTAA's 25% dividend rate is worse than India's domestic withholding rate of approximately 20.8%. In these situations, claiming the DTAA is counter-productive. Indian domestic law is more beneficial — you should not invoke the treaty rate. This is one of the few situations where opting out of the DTAA is the correct tax position.

Cost-to-cost reimbursements are not taxable — even if the make-available test is unclear

The ITAT Delhi confirmed in Invesco Holding Company (2025): where a US parent charges its Indian subsidiary for IT and support services on a cost-to-cost basis with no markup, the amount received is a cost reimbursement — not income. Even if the services might otherwise qualify as FIS, a payment with no profit element embedded in it is not "income" and therefore not taxable in India, regardless of the FIS characterisation. For US companies that allocate group shared service costs to India on a pure cost basis, this provides a strong protection from withholding tax — but the cost allocation must be genuinely at cost with no markup.

The 120-day construction PE threshold has caught US IT companies off guard

The India-US DTAA specifies a 120-day threshold for construction and installation projects creating a PE — one of the shortest thresholds in any of India's bilateral treaties. India-UK is 9 months; India-Australia uses 6 months. Many US IT and engineering companies deploy project teams to India for extended periods assuming a generous PE threshold applies. At day 121, a PE of the US parent exists — and profits attributable to it are taxable in India at 40% plus surcharge and cess. Track India project days per engagement and per financial year.

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9. Frequently Asked Questions

What is the India-US DTAA?

The India-US DTAA is a bilateral tax treaty signed on 12 September 1989 (last amended 2000) that prevents double taxation of income between India and the US. For US companies with Indian subsidiaries, it sets maximum withholding tax rates on dividends (15/25%), interest (10% for bank/similar financial institution or insurance-company loans; 15% in other cases), royalties (10/15%), and fees for included services (10/15%), and defines when a US company creates a taxable PE in India.

What withholding tax rate applies when a US parent receives dividends from its Indian subsidiary?

15% if the US parent holds at least 10% of the voting stock (which covers most wholly owned subsidiaries). 25% if the US parent holds less than 10% — in which case the domestic Indian rate of ~20.8% is more beneficial and should be used instead of the treaty rate.

What is the difference between FTS and FIS?

FTS (Fees for Technical Services) appears in the India-UK and most other DTAAs — it broadly covers managerial, technical, and consultancy services. FIS (Fees for Included Services) in the India-US DTAA is narrower — it only covers services that make available technical knowledge, skill or know-how, or that are ancillary to a royalty. Pure management fees, advisory fees, and co-ordination charges typically do not qualify as FIS and are instead Business Profits under Article 7 — not taxable in India if no US PE exists.

Does TDS apply to LinkedIn Premium subscriptions paid by an Indian subsidiary?

Standard end-user access without copyright rights or transfer of technical know-how may generally be treated as Business Profits rather than royalty or FIS. Because the invoice may be issued by an Irish entity, the applicable treaty must be identified. Any no-withholding conclusion depends on the agreement and absence of a PE in India. 18% GST under RCM applies separately, recoverable as ITC.

Does TDS apply to ChatGPT (OpenAI) or Claude (Anthropic) subscriptions?

Standard hosted-service access without copyright rights or transfer of technical know-how may generally be treated as Business Profits rather than royalty or FIS. Any no-withholding conclusion depends on the contracting entity, invoice, agreement, applicable treaty and absence of a PE in India. 18% GST under RCM applies.

What creates a Permanent Establishment in India for a US company?

A fixed place of business, a construction/installation project lasting more than 120 days (note: shorter than most treaties), service personnel furnishing services in India for more than 90 days in any 12-month period (with a separate rule for services to an associated enterprise that can apply without the usual 90-day threshold), or a dependent agent habitually concluding contracts on behalf of the US company. A US company's Indian subsidiary is not automatically a PE — but activities conducted by or through the subsidiary can create one.

How does the India-US DTAA differ from the India-UK DTAA for intercompany charges?

Both treaties require the actual service to be tested against the relevant article. Under Article 13 of the India-UK DTAA, managerial services are expressly excluded and technical or consultancy services generally require the make-available condition. Under the India-US DTAA, Article 12 applies the Fees for Included Services test. Neither treaty produces a blanket 15% result for routine intercompany charges. The India-UK DTAA is more favourable on dividends (flat 15% vs 15/25% under India-US) and has a longer construction PE threshold (9 months vs 120 days).

How does a US company claim DTAA benefits in India?

Obtain Form 6166 (Tax Residency Certificate) from the IRS, file Form 41 on India's Income Tax e-filing portal (replaces Form 10F, effective 1 April 2026), provide a beneficial ownership declaration, and the Indian subsidiary checks the applicable part of Form 15CA and whether Form 15CB is required before remitting. The applicable tax-residency and beneficial-ownership documents should be available before the Indian payer applies the treaty rate at withholding.

Does the India-US DTAA have a saving clause?

Yes. Article 1 preserves the US's right to tax its citizens and corporations on worldwide income regardless of the treaty. US companies with Indian subsidiaries are taxed in the US on Indian profits — relief from double taxation comes through the Foreign Tax Credit (Form 1118), not treaty exemptions.

Does the MLI apply to the India-US DTAA?

No. The United States has not adopted or ratified the OECD Multilateral Instrument. The Principal Purpose Test (PPT) that applies to the India-UK and India-Australia DTAAs does not apply to the India-US DTAA. However, India's domestic GAAR provisions apply independently to arrangements lacking genuine commercial substance.

What is the withholding tax on royalties under the India-US DTAA?

15% for copyright, patent, trademark, and secret process royalties under Article 12(2)(a). 10% for equipment rental royalties and FIS payments ancillary to royalties under Article 12(2)(b). The domestic Indian rate without the treaty is approximately 20.8%.

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