India–US DTAA: How NRIs Avoid Double Taxation

If you live in the US and still earn in India, you sit inside two tax systems at once. India taxes the income because it arises there. The US taxes it because it taxes its residents and citizens on worldwide income. Left alone, the same rupee gets taxed twice. The India–US Double Taxation Avoidance Agreement is the treaty that stops that, and under Section 90 of the Income-tax Act its rates override the domestic ones whenever the treaty is kinder. The catch is that none of it is automatic. You only get the lower rate and the credit if you file the right paperwork, in the right order, before the money moves.

These are the ceilings the India–US treaty puts on Indian tax for a US-resident NRI. Where the domestic rate is higher, the treaty rate wins under Section 90. The line that trips people up is capital gains: Article 13 does not give gains a lower rate, so India taxes a property or share gain under its own law and the treaty only helps by letting you credit that Indian tax against your US bill.

This is where the treaty pays you back the fastest. Left to default, an Indian bank deducts around 30% on your NRO interest and 20% on dividends. To bring that down to the 15% treaty rate, give the payer three things before they credit the income: a valid Tax Residency Certificate (for a US resident, IRS Form 6166), a Form 10F filed electronically on the Indian income-tax portal, and a short self-declaration that you are the beneficial owner. With those on file, the bank deducts at 15%, and you never have to chase the difference.

Interest and dividends are capped. Gains are not. Use the treaty aggressively on passive income, where the 15% ceiling is a real saving. Do not expect it to touch a property or share capital gain, because Article 13 leaves those to domestic law. For a property sale the right tool is the Section 197 certificate; the DTAA then works on the back end through the US foreign tax credit.

The credit is what stops the same income being taxed twice over. Where India has already taxed income that the US also taxes (or the reverse), you claim a credit for the tax paid in the other country rather than paying both in full. In India this runs through Section 90 and Rule 128: you file Form 67 before you file your ITR, convert the foreign tax at the RBI reference rate, and the credit is limited to the Indian tax attributable to that income. Miss the Form 67 and the credit can be denied outright, so it is filed first, not as an afterthought. On the US side the mirror image is Form 1116.

The year you move, you can look resident in both countries. Article 4 decides which one wins. The tie-breaker runs in order: where is your permanent home, then your centre of vital interests (personal and economic ties), then your habitual abode, then your nationality, and finally a mutual agreement between the two tax authorities. Getting this right in a transition year decides which country taxes your worldwide income and which only taxes local income, so it is worth modelling before you file rather than after a notice.

If the deduction already happened at the full rate, the treaty still gets you the money back. Where a payer deducted at the domestic rate because your TRC and Form 10F were not in place, file ITR-2, report the income in Schedule FSI, claim the relief in Schedule TR, and quote the DTAA article. The excess comes back as a refund. It is slower than getting the rate right up front, which is exactly why levers 1 and 3 matter.

Same income, same law. The ₹3 lakh difference is purely a function of whether the paperwork reached the bank before the interest was paid.

NRI Blueprint sets this up end to end for US-based clients: obtaining and validating the TRC, filing Form 10F on the portal, getting the treaty rate applied at source, and running the Form 67 foreign tax credit so the India and US positions line up instead of colliding. It is led by a practising Chartered Accountant, and the work is in the sequencing, getting the documents in before the income is paid, not reconstructing it at refund time.

The India–US DTAA is not a form of tax exemption, it is a rate cap plus a credit, and both are conditional on paperwork. Get your TRC and Form 10F to the payer and your Indian interest and dividends drop to 15% at source. File Form 67 before your return and the same income never gets taxed twice. Leave it to chance and you overpay first and reclaim later, if at all. For anyone splitting a financial life across India and the US, the treaty is one of the few levers that pays for the advice several times over, provided you pull it before the money moves.