Cross-border transaction advisory and DTAA analysis

What this covers

Advice on a cross-border transaction before it is priced, contracted or paid: whether India has a right to tax it, whether a Double Taxation Avoidance Agreement limits that right, at what rate tax must be withheld, and what documentation the position depends on. It covers characterisation of the payment, whether the non-resident has a permanent establishment or business connection in India, the article-by-article reading of the treaty, credit for tax paid in the other country, and the written record that supports the treatment if it is examined years later.

Statutory basis

A Double Taxation Avoidance Agreement is a bilateral treaty, given effect in Indian law by the Income-tax Act, 2025 — which came into force on 1 April 2026 and repealed the Income-tax Act, 1961. For years up to 31 March 2026 the enabling provisions were sections 90 and 90A of the old Act, under which a taxpayer could be assessed on the footing of the treaty where the treaty was more favourable. India's treaties are further modified by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, in force for India since 1 October 2019, so the printed text of an older treaty is no longer the whole answer and the synthesised text has to be read with it.

Who it applies to

Indian businesses paying licence fees, technical or management fees, interest, royalty, commission or dividend abroad; non-residents earning fees, interest, rent, dividend or capital gains from India; residents with income outside India; and groups moving people, intellectual property or funds across the border. The analysis runs per stream of income rather than per counterparty, so one payee can attract two different answers in the same year.

What we do

1. 1Establish the residential status of each party for the year, and where a person is resident in both countries apply the tie-breaker tests in Article 4 in the order that article sets them out.
2. 2Characterise the payment — royalty, fees for technical or included services, interest, dividend, business profits, capital gain, or reimbursement of cost without mark-up — because characterisation decides the outcome far more than amount does.
3. 3Test whether the non-resident has a permanent establishment under Article 5 or a business connection under domestic law; where it does, profits attributable to it are taxed on a net basis and a return becomes due in India, so the withholding rate is no longer the main question.
4. 4Compare the treaty rate with the domestic rate and apply the lower, and check whether a most-favoured-nation clause or protocol imports a narrower definition or a lower rate from another treaty.
5. 5Test the arrangement against the anti-abuse provisions that now sit above the treaty: the principal purpose test the Multilateral Convention inserts, any limitation-of-benefits article, and the domestic general anti-avoidance rule.
6. 6Obtain the documents the relief is conditional on — a Tax Residency Certificate from the other country's authority, the prescribed treaty declaration, a no-permanent-establishment declaration where the benefit turns on it, and beneficial-ownership confirmation for interest, dividend and royalty.
7. 7Where both countries have taxed the same income, compute the credit due in the country of residence, and record the position in writing before the transaction rather than reconstructing it during an assessment.

What you receive

Position note

The article relied on, the rate applied and the reasoning, including where the position is arguable.

Withholding advice

The rate to deduct on each payment stream, and the facts that would change it.

Document set

The treaty documentation held on file, with a note of what expires when.

Credit computation

The foreign tax credit working, reconciled to the foreign tax actually paid.

Documents and information required

Agreement or purchase order with the non-resident · invoices describing what was actually supplied · Tax Residency Certificate for the relevant period · the prescribed treaty declaration · no-permanent-establishment declaration · beneficial-ownership confirmation for interest, dividend and royalty · dates on which the non-resident's personnel were in India · foreign tax return and proof of tax paid where a credit is claimed · earlier positions and orders on the same stream of income.

Key dates

The analysis has to be settled before payment, because the obligation to withhold arises on credit or payment, whichever is earlier; once the money has left, the choice is between bearing the tax and litigating it. A Tax Residency Certificate covers a stated period and must be current for the year of payment, so it is obtained afresh rather than carried forward. the prescribed treaty declaration is furnished electronically by the non-resident on the income-tax portal. Where double taxation persists, the Mutual Agreement Procedure carries its own limit in the treaty text, commonly three years from the first notification of the action complained of.