India–US DTAA Essentials for NRIs: Residency, Form 67, Tie-Breakers

India’s updated residency rules and the India–US DTAA are now shaping tax bills for millions of NRIs and Indian returnees in the 2024–25 financial year, with tighter day-count thresholds, stricter proof requirements for treaty relief, and firm deadlines for foreign tax credit claims. The questions NRIs are asking are direct: who counts as resident, when do India–US DTAA protections apply, which forms must be filed and by when, and how do tie-breaker rules settle dual residency cases?

Officials and cross-border advisers say the answers depend on three anchors—residency status under Indian law, DTAA eligibility under Articles 4 and 10–12, and timely compliance through Tax Residency Certificates (TRC), Form 10F, and Form 67.

Key changes affecting NRIs and returnees

• The 120‑day rule linked to Indian income above ₹15 lakh can unexpectedly tip a traveler into RNOR or even ROR status. This is a turning point for many Indian professionals working in the United States.
• Stricter enforcement and documentation checks are drawing a clear line between those who remain non-resident (NR) and those who face global taxation in India (with only foreign tax credits to reduce the burden).
• The RNOR window gives returnees temporary relief, but only if day counts, income levels, and documentation are handled carefully from the first day of the financial year.

What the DTAA does — and does not do

• The India–US DTAA reduces double taxation only when the person is eligible and can prove treaty residence or claim specific articles that limit source-country withholding.
• In practice, that means keeping a valid Tax Residency Certificate (TRC) from the country of residence, filing Form 10F, and—if resident in India—claiming foreign tax credit through Form 67 before the income-tax return due date.
• Failure to meet any one requirement often leads to:
  • higher tax withheld at source,
  • disallowance of credits, and
  • cash flow strain until refunds are processed.

Indian residency categories — practical effects

• A non-resident typically stays under 182 days in India during the April–March financial year.
• If Indian income exceeds ₹15 lakh, the threshold to become resident can drop to 120 days, depending on past presence and liability to tax abroad.
• Resident categories:
  • RNOR (Resident but Not Ordinarily Resident) — taxed on Indian income and certain foreign income (e.g., foreign income received in India or connected to a business controlled from India).
  • ROR (Resident and Ordinarily Resident) — taxed on worldwide income.
• Frequent travelers risk drifting from NR → RNOR → ROR by surprise when short trips or family visits push day counts over thresholds.

Tie-breaker (Article 4) for dual residency

• When both India and the United States treat a person as resident under domestic rules, Article 4’s tie-breaker decides the treaty residence.
• The tie-breaker proceeds through four steps:
  1. Permanent home
  2. Center of vital interests
  3. Habitual abode
  4. Nationality
• Each step requires documentary proof: rental agreements, utility bills, school records, bank statements, and evidence of where business and social life are centered.
• Day-count calendars, passport stamps, and airline records are necessary but often insufficient without added context about personal and economic ties.

Withholding caps under Articles 10–12

• Article 10 (dividends), Article 11 (interest), and Article 12 (royalties) cap source-country withholding, but only when the payee is the beneficial owner and provides treaty documentation.
• Typical caps:
  • Dividends: up to 15% under the DTAA (and 25% where shareholding is small), versus domestic Indian rates that can be 20% plus surcharge and cess.
  • Interest & Royalties: typically capped at 10% under the treaty.
• Without a TRC and Form 10F, payers must withhold at domestic rates, and the excess may be locked up until assessment and refund.

Foreign Tax Credit (FTC) and Form 67

• For India-based residents with foreign income, FTC through Form 67 is the main safeguard against double taxation.
• Rules and limits:
  • Residents (both ROR and RNOR) can claim FTC for taxes paid abroad on the same income, but only up to the Indian tax on that income.
  • The credit is not refundable beyond that cap and cannot be carried forward.
  • Form 67 must be filed on or before the Indian return deadline to avoid denial of credits.
• Evidence to keep: filed US return (Form 1040 or 1040NR), wage statements, and tax payment receipts.

Case studies and common scenarios

• Example: a software manager on H‑1B who spends extended time in India and earns rental income in Bengaluru.
  • If Indian-source income exceeds ₹15 lakh and presence crosses 120 days, RNOR or ROR status can apply depending on prior years and US tax liability.
  • If the US substantial presence test is also met, dual residency arises and the tie-breaker focuses on permanent home and center of vital interests.
  • If treaty residence resolves to the United States, India’s scope to tax global income is limited to Indian-source income — but TRC, Form 10F, and withholding certificates remain critical.
• Returnees often time arrival late in February or March to remain NR or RNOR for another year. That can protect overseas investment income and salaries from Indian taxation during transition — but success depends on multi-year day counts and whether the person is liable to tax abroad.

RNOR vs ROR — reporting and tax implications

• Both resident types must disclose foreign assets and foreign income in the Indian return.
• Key distinctions:
  • ROR: taxed on worldwide income; FTC available where allowed.
  • RNOR: generally not taxed on most foreign income unless received in India or tied to a business controlled from India.
• For retirees returning after decades abroad, RNOR can protect foreign pension and investment income during transition years if money remains outside India and no India-controlled foreign business income arises.

Required documentation and compliance checklist

• To claim treaty rates on Indian payments (dividends, interest, royalties):
  • Provide a valid TRC and file Form 10F.
• To claim FTC on foreign tax:
  • File Form 67 on time and support it with foreign tax returns/receipts.
• TRCs are usually valid for one financial year and require annual renewal.
• If an Indian payer does not receive TRC and Form 10F, it must withhold at domestic rates; recovering excess can be slow and bureaucratic.

Essential documents to maintain:
– lease agreements or mortgage statements
– utility bills
– school records for children
– bank and brokerage statements
– employer letters confirming work location
– contemporaneous travel log, passport stamps, and boarding passes
– withholding certificates and foreign tax receipts

Withholding, Form 67 timing, and compliance risks

• Payers in India will apply DTAA caps only after seeing a TRC and Form 10F.
• Without them, domestic withholding applies and refunds can take months.
• Form 67 captures country-wise income and taxes paid and must be filed before the income-tax return deadline.
• FTC = min(foreign tax paid, Indian tax on the same income). Excess foreign tax is lost (no carryforward).
• Non-disclosure of foreign assets can lead to penalties and, in serious cases, prosecution under the Black Money law.

Practical planning tips

• Common planning choices:
  • Limit India trips and keep Indian income below ₹15 lakh to retain NR status where appropriate.
  • Time return to India late in the financial year to aim for RNOR in Year 1.
  • Entrepreneurs should check whether control of a US business from India draws foreign business income into Indian tax net despite RNOR status.
• Annual process checklist:
  1. Track India day counts daily; keep passport pages and boarding passes.
  2. Decide target status—NR, RNOR, or ROR—and plan travel accordingly.
  3. Renew TRC every year and share it with Indian payers early.
  4. Submit Form 10F before any dividends, interest, or royalty payments.
  5. If resident, file Form 67 before the ITR deadline with supporting foreign tax proofs.
  6. Reconcile foreign taxes to ensure the FTC does not exceed Indian tax on the same income.
  7. Disclose foreign assets on the Indian return if resident.
  8. Keep copies of all documentation—facts on paper decide tie-breakers.

Important: Missing a deadline for Form 67, skipping TRC renewal, or forgetting Form 10F can turn a manageable year into a costly one.

Why the India–US DTAA matters in 2025

• Tighter residency enforcement and documentation checks are changing outcomes for NRIs and returnees with cross-border income.
• Article 4 tie-breaker resolves dual residency; Articles 10–12 cap withholding on common cross-border payments.
• Treaty relief depends on proof—TRCs, Form 10F, precise travel records, and documents showing where a person actually lives, works, and keeps their main life.

Specific treaty details to note:
– Dividends: treaty allows source-country withholding up to 15% where the US resident holds at least 10% voting power; 25% can apply for smaller holdings.
– Interest & Royalties: typical treaty cap is 10% when the payee is beneficial owner.
– Domestic Indian rates (plus surcharge and cess) often exceed treaty caps, making documentation critical to avoid higher immediate withholding.

Cross-jurisdictional coordination — don’t forget US rules

• US citizens and green card holders must file US returns annually, which feed into FTC calculations in India when they are Indian residents.
• Coherent planning requires reviewing taxation in both countries: how a stock sale is taxed (long-term vs short-term), and how credits interact across systems.

Human impact — real risks & examples

• A young family returning to India to care for elderly parents may not track day counts; a few extra weeks could flip them into ROR with full global taxation.
• A retiree splitting time between Goa and California may face dividend withholding at domestic rates if TRC renewal is delayed.
• A start-up founder receiving royalties may lose the 10% treaty rate if Form 10F is missing at payment time.

Official resources

• The Income Tax Department of India hosts laws, circulars, and portal-based forms:
  • Main site: https://www.incometax.gov.in
  • Guidance for Form 67: https://www.incometax.gov.in/iec/foportal/help/income-tax-returns/foreign-tax-credit-form-67
  • Guidance for Form 10F: https://www.incometax.gov.in/iec/foportal/help/how-to-file-form-10f
• Note: these links and portal instructions can change, so download fresh guidance each year.

Final takeaways

• The India–US DTAA is a practical tool, not a magic shield. It prevents double taxation when a person qualifies and complies.
• It limits withholding when payers see the proper documents, and it designates a single treaty residence through a careful tie-breaker test.
• For NRIs and returnees, the surest path to a fair tax outcome is steady attention to:
  • Residency rules,
  • early collection of TRC and Form 10F, and
  • on-time filing of Form 67 when resident.

Keep records contemporaneously and treat paperwork as the core of any cross-border tax strategy — it’s often the difference between a smooth year and a costly dispute.