US-India Tax Treaty (DTAA) Explained: Complete 2026 Guide for NRIs

The US-India Double Taxation Avoidance Agreement (DTAA) stands as one of the most important tax treaties for Non-Resident Indians (NRIs) navigating cross-border taxation. Signed in 1989 and amended through a protocol in 2000, this bilateral agreement determines how income earned in one country is taxed when the recipient resides in the other. For the millions of Indian professionals working in the United States, retirees receiving pensions from either country, and investors with assets spanning both nations, understanding this treaty is essential to avoid paying taxes twice on the same income.

The treaty covers virtually every type of income an NRI might encounter: salaries, dividends, interest, royalties, capital gains, pensions, and more. Each income category has specific rules governing which country has the primary right to tax it, and at what rates. Perhaps most critically for US citizens and green card holders, the treaty contains a “saving clause” that preserves America’s right to tax its citizens on worldwide income, with certain important exceptions that can still provide relief.

This comprehensive guide breaks down every major provision of the US-India tax treaty, explains how the bilateral tax agreements affect NRIs, provides current withholding rates for 2026, and walks you through exactly how to claim treaty benefits. Whether you are an H-1B worker, an F-1 student, a green card holder, or a US citizen with Indian investments, this guide will help you understand your tax obligations and opportunities under the DTAA.

What is the US-India Tax Treaty (DTAA)?

The Double Taxation Avoidance Agreement between the United States and India is a bilateral tax treaty designed to prevent the same income from being taxed twice when it crosses borders between the two countries. The treaty was originally signed on September 12, 1989, entered into force on December 18, 1990, and became effective for withholding taxes on January 1, 1991. A protocol amending certain provisions was signed in 2000 to modernize the agreement and address evolving economic relationships.

The treaty is built primarily on the OECD and UN Model Tax Conventions, which provide standardized frameworks for international tax agreements. This foundation ensures consistency with how India and the US structure tax treaties with other nations, making cross-border tax planning more predictable for businesses and individuals operating in multiple jurisdictions. The India-USA DTAA and Foreign Tax Credit provisions work together to provide comprehensive relief from double taxation.

Primary Objectives of the Treaty

The US-India DTAA serves three fundamental purposes. First, it allocates taxing rights between the two countries, determining which nation has the primary right to tax specific types of income. Second, it sets maximum withholding tax rates that the source country can impose, often lower than domestic statutory rates. Third, it establishes mechanisms for eliminating double taxation when both countries have legitimate claims to tax the same income, primarily through foreign tax credits.

For NRIs specifically, the treaty provides clarity on how their Indian income will be treated when they file US taxes, and vice versa. Without such a treaty, income could theoretically be fully taxed in both countries, resulting in effective tax rates exceeding 60-70% on cross-border income. The treaty prevents this outcome by capping source-country taxation and ensuring the residence country provides credit for taxes paid abroad.

Tax Residency Under the DTAA (Article 4)

Article 4 of the US-India tax treaty addresses one of the most fundamental questions in international taxation: which country gets to treat you as a tax resident? This determination is crucial because tax residents are typically subject to tax on their worldwide income, while non-residents are only taxed on income sourced within that country. The DTAA essentials for NRIs including residency and tie-breakers provide the framework for resolving dual-residency situations.

Under Article 4, a person is considered a “resident” of a Contracting State if they are liable to tax there based on domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature. However, this definition explicitly excludes persons who are taxed in that country only on income from sources within that country. This nuance is important because it distinguishes between genuine tax residents and those with limited tax exposure.

Tie-Breaker Rules for Dual Residents

When an individual qualifies as a tax resident under the domestic laws of both the US and India simultaneously, the treaty provides a series of tie-breaker tests applied in sequential order. These tests determine which country will be considered the person’s residence for treaty purposes, which then affects how various types of income are taxed.

Understanding these tie-breaker rules is essential for NRIs who maintain significant connections to both countries. For example, an Indian citizen working in the US on an H-1B visa who owns a house in India and maintains a rented apartment in the US would need to carefully analyze where their permanent home is located. Similar considerations apply when examining tax residency under other DTAAs that India has signed.

The Saving Clause: What US Citizens and Green Card Holders Must Know

Perhaps the most critical provision for US citizens and permanent residents to understand is the treaty’s “saving clause” contained in Article 1, Paragraph 3. This provision fundamentally limits the treaty benefits available to US persons and is often misunderstood by those new to international taxation. The India-U.S. Tax Treaty essentials for visa holders are affected significantly by this clause.

The saving clause states: “Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4) and by reason of citizenship may tax its citizens, as if this Convention had not come into effect.” In practical terms, this means the United States can apply its full domestic tax rules to US citizens and green card holders regardless of what the treaty otherwise provides.

Important Exceptions to the Saving Clause

Paragraph 4 of Article 1 lists specific treaty articles that remain effective despite the saving clause. These exceptions are critically important because they represent the limited circumstances where US persons can still benefit from treaty provisions:

• Article 25 (Relief from Double Taxation): US persons can still claim foreign tax credits for taxes paid to India, which is the primary mechanism for avoiding actual double taxation.
• Article 26 (Non-Discrimination): Protections against discriminatory taxation remain in effect for citizens and residents of both countries.
• Articles 20-22 (Pensions, Students, Teachers): Certain provisions for government pensions, students, and teachers continue to apply even to US citizens under specific conditions.
• Article 27 (Mutual Agreement Procedure): The dispute resolution mechanism remains available.

Additionally, Paragraph 4(b) provides that if a US resident who is not a US citizen or green card holder claims benefits under Articles 20-22, those benefits continue even if the person later becomes a US resident under domestic law, provided they do not become a green card holder or citizen.

Dividend Income: Treaty Tax Rates (Article 10)

Article 10 of the US-India DTAA governs the taxation of dividend income flowing between the two countries. Under this article, dividends paid by a company resident in one country to a resident of the other country may be taxed in both countries, but the source country’s tax is capped at specific rates. Understanding these rates is essential for NRIs with investments in either country, as the treaty provisions for NRI passive income can significantly affect after-tax returns.

The 15% reduced rate for substantial holdings incentivizes significant cross-border investments by reducing the tax cost of repatriating profits. For example, if an Indian company pays $10,000 in dividends to a US resident who owns 15% of the company’s voting stock, the maximum Indian withholding tax would be $1,500 rather than the $3,000 that might apply without the treaty.

It is important to note that both countries retain the right to tax dividends under their domestic law, subject to these caps. The country of residence (where the shareholder lives) generally provides relief through foreign tax credits, allowing the shareholder to offset taxes paid to the source country against their residence-country tax liability. The withholding tax rate structures in other DTAAs follow similar patterns.

Interest Income: Treaty Benefits (Article 11)

Article 11 addresses interest income, which is particularly relevant for NRIs who maintain bank accounts, fixed deposits, or other interest-bearing investments in India. The treaty provides reduced withholding rates that can significantly improve returns on cross-border lending and deposit arrangements. These provisions work alongside other treaty structures, such as the India-Canada DTAA provisions for NRI finances.

The distinction between bank interest (10%) and other interest (15%) is significant for NRIs. Interest on NRO fixed deposits from Indian banks qualifies for the 10% rate, while interest from corporate debentures or loans to non-financial entities would be subject to the 15% rate. Additionally, interest received by either government, by certain governmental financial institutions, or by residents on government-approved loans is completely exempt from source-country taxation.

Claiming Reduced Withholding on Interest

To claim the reduced treaty rates on interest income in India, NRIs must provide their Indian bank or payer with specific documentation. This includes a Tax Residency Certificate (TRC) from US authorities, typically obtained as Form 6166, along with Form 10F filed through the Indian tax portal and a declaration of no permanent establishment in India. Without this documentation, the payer may withhold at the full 30% domestic rate.

Royalties and Technical Services (Article 12)

Article 12 covers royalties and fees for technical services, which are increasingly relevant as cross-border intellectual property licensing and service arrangements grow. The treaty establishes specific withholding rates depending on the type of royalty or service involved.

The 10% rate for equipment royalties is notably lower than the 15% rate for intellectual property royalties. This distinction reflects the treaty’s approach of providing more favorable treatment for physical asset rentals compared to intangible property licensing. For software companies and technology businesses, understanding whether a payment constitutes an equipment royalty (software embedded in hardware) versus an IP royalty (standalone software license) can have significant tax implications.

Fees for technical services (FTS) are included within the royalty article of the US-India treaty, unlike some other treaties that treat them separately. This inclusion means that technical consulting fees paid from India to US residents are subject to the 15% withholding rate at source, with credit available when the recipient files their US tax return.

Capital Gains Under the DTAA (Article 13)

Unlike dividends, interest, and royalties, capital gains receive notably different treatment under the US-India tax treaty. Article 13 does not impose treaty limitations on capital gains taxation, meaning each country may tax capital gains according to its domestic law. This creates potential for double taxation that must be addressed through foreign tax credits rather than treaty rate reductions.

For NRIs selling Indian property, this means Indian capital gains tax applies in full according to Indian domestic law, and the US will also tax the gain as part of worldwide income. The TDS requirements for NRI property sales in India must be carefully followed, with the Indian tax then claimed as a foreign tax credit on the US return. Understanding how different jurisdictions handle capital gains, as explored in Gulf country DTAA provisions for NRIs, helps put these rules in context.

Key Capital Gains Scenarios for NRIs

• Indian Real Estate: Gains taxed in India at 12.5% (long-term, if held over 24 months) or at slab rates (short-term). TDS of 12.5% applies. US taxes at capital gains rates with FTC for Indian tax.
• Indian Stocks (Listed): Long-term gains (over 12 months) above Rs. 1.25 lakh taxed at 12.5% in India. Short-term gains taxed at 20%. US taxes at applicable rates with FTC.
• Indian Mutual Funds: Equity funds follow stock rules. Debt fund gains taxed at slab rates regardless of holding period (post-2023 changes).
• US Property Sold by Indian Resident: US FIRPTA rules apply, with 15% withholding. India taxes worldwide income of residents.

Pension Income: Government vs Private (Articles 19 and 20)

The treaty distinguishes between government service pensions and private pensions, with significantly different tax treatment for each category. Understanding these distinctions is crucial for retirees receiving pension income from either country, and the rules differ from those in other treaties like the India-UK DTAA pension provisions.

The distinction between government and private pensions creates planning opportunities for retirees. For example, an Indian government retiree who moves to the US would generally continue to pay tax only to India on their government pension, while a former private sector employee receiving EPF or corporate pension would be taxed only in the US as a resident. However, the saving clause can affect US citizens receiving Indian government pensions.

For those dealing with Indian retirement accounts specifically, the US tax treatment of EPF, PPF, and NPS involves complex considerations beyond the treaty itself, including whether these accounts qualify for treaty benefits and how distributions are characterized for US tax purposes.

Special Provisions for Teachers, Researchers, and Students (Articles 21-22)

The US-India tax treaty includes special provisions benefiting teachers, researchers, and students who temporarily visit one country from the other. These provisions are particularly valuable because they represent exceptions to the saving clause, meaning even US citizens and residents can benefit under certain conditions.

Teachers and Researchers (Article 21)

A teacher or researcher who is or was a resident of one country immediately before visiting the other country for the purpose of teaching or research at a recognized educational or research institution may be exempt from tax on their remuneration for such activities. This exemption applies for a period not exceeding two years from the date of arrival. The key requirements are:

• The individual was a resident of the home country immediately before the visit
• The visit is for teaching or engaging in research at a university, college, or recognized institution
• The visit is at the invitation of the host institution
• The exemption period does not exceed two years

Students and Trainees (Article 22)

Students and business apprentices from India studying in the US receive several important tax benefits. Payments received from sources outside the US for maintenance, education, or training are exempt from US tax. Additionally, Indian students in the US can claim the standard deduction on their tax returns, a benefit not available to most nonresident aliens. For the 2025 tax year, this standard deduction is $15,750, providing significant tax savings compared to itemizing deductions.

How to Claim Relief from Double Taxation (Article 25)

Article 25 provides the mechanism for eliminating double taxation when both countries have the right to tax the same income. For US residents, this primarily works through the Foreign Tax Credit (FTC), which allows taxes paid to India to be credited against US tax liability on the same income. The treaty implications for avoiding double taxation make this credit the most important practical benefit for most NRIs.

The foreign tax credit operates on a limitation basis. You can only credit foreign taxes up to the amount of US tax that would be due on the foreign-source income. If your foreign tax exceeds this limitation, you can carry the excess credit back one year or forward up to ten years. This ensures you eventually get credit for all foreign taxes paid, even if not in the year paid.

For Indian residents with US-source income, India similarly provides credit for US taxes paid. The specific mechanism depends on Indian domestic law and the particular income type. In both cases, the residence country provides credit for source-country taxes, ensuring that while income may be taxed in both countries, the total tax burden does not exceed what would apply in the higher-tax jurisdiction.

How to Claim Treaty Benefits: Forms and Documentation

Claiming US-India treaty benefits requires proper documentation and tax filings in both countries. The specific requirements differ depending on which country you are claiming benefits from and the type of income involved.

Claiming Benefits in the United States

When claiming treaty benefits on your US tax return that override provisions of the Internal Revenue Code, you must file Form 8833, Treaty-Based Return Position Disclosure. This form notifies the IRS that you are taking a position based on a tax treaty rather than domestic US law. Failure to file Form 8833 when required can result in a $1,000 penalty for individuals.

Claiming Benefits in India

To claim treaty benefits in India, particularly reduced withholding rates, you need to provide documentation to the payer before payment is made. The required documents include:

• Tax Residency Certificate (Form 6166): Obtained from the IRS, this certifies your US tax residency. Request using Form 8802 at least 45 days before needed.
• Form 10F: Filed electronically through the Indian Income Tax portal, providing additional information required by Indian authorities.
• No Permanent Establishment Declaration: A signed declaration stating you do not have a permanent establishment in India.
• PAN (Permanent Account Number): If you have Indian-source income, obtaining a PAN is generally required.

Example Scenarios

Understanding how the US-India DTAA applies in practice requires examining specific situations. The following scenarios illustrate common tax situations faced by NRIs and how treaty provisions affect their tax outcomes.

Frequently Asked Questions

Does the US-India tax treaty eliminate double taxation completely?

The treaty does not eliminate the possibility of income being taxed in both countries. Instead, it prevents actual double taxation through two mechanisms: reduced withholding rates at source and foreign tax credits in the residence country. The net effect is that you pay the higher of the two countries’ tax rates, not both rates combined.

Can US citizens benefit from the US-India tax treaty?

US citizens face significant limitations due to the saving clause. However, they can still benefit from Article 25 (foreign tax credits), which prevents actual double taxation. Additionally, certain provisions for teachers, students, and government pensions have exceptions to the saving clause. US citizens cannot use the treaty to reduce their US tax liability on most income types.

How do I know which country I am a tax resident of under the treaty?

First, determine if you meet the tax residency requirements under each country’s domestic law. If you are a resident of only one country, that country is your treaty residence. If you qualify as a resident of both countries, apply the tie-breaker tests in Article 4 sequentially: permanent home, center of vital interests, habitual abode, nationality, and finally mutual agreement procedure.

Do I need to file Form 8833 every year?

You must file Form 8833 each year you take a treaty position that overrides the Internal Revenue Code. However, certain positions do not require Form 8833, including claiming reduced withholding rates on dividends, interest, royalties, and claiming treaty exemptions for dependent personal services, pensions, or student income. When in doubt, filing the form is safer than risking penalties.

What happens if I do not claim the reduced TDS rate in India?

If you fail to provide proper documentation and the payer withholds at the full 30% rate instead of the treaty rate, you can claim a refund by filing an Indian income tax return. The excess TDS will be refunded, though this process can take several months. You can still claim foreign tax credit in the US for the full amount withheld.

Are NRE account interest proceeds covered under the treaty?

NRE account interest is exempt from Indian tax under Indian domestic law (not the treaty), so treaty provisions are not needed. The interest is, however, taxable in the US as worldwide income. Since no Indian tax is paid, there is no foreign tax credit to claim. NRO account interest, which is taxable in India, does benefit from treaty rate reductions.

Bottom Line

The US-India Double Taxation Avoidance Agreement is an essential framework for NRIs managing cross-border finances between the two countries. While the treaty does not eliminate taxation in both countries, it provides crucial mechanisms to prevent punitive double taxation through reduced withholding rates and foreign tax credit provisions. Understanding the key provisions, from residency determination to the saving clause to specific income category rules, allows you to plan effectively and minimize your overall tax burden.

For most NRIs, the practical benefits come from three areas: reduced TDS rates on Indian passive income (10-15% instead of 30%), the ability to credit Indian taxes against US tax liability, and special provisions for students and teachers. US citizens and green card holders face more limitations due to the saving clause but still benefit significantly from foreign tax credits that prevent actual double taxation.

Given the complexity of international taxation and the significant penalties for non-compliance in both countries, consulting with a qualified tax professional who understands both US and Indian tax law is strongly recommended. The specific application of treaty provisions depends on your individual circumstances, and professional guidance can help you maximize benefits while ensuring full compliance with all filing requirements.

Disclaimer

This article provides general information about the US-India Double Taxation Avoidance Agreement and is intended for educational purposes only. It does not constitute legal, tax, or financial advice. Tax laws and treaty interpretations can change, and individual circumstances vary significantly. The information presented reflects understanding as of early 2026 and may not reflect subsequent changes to law or regulations. Always consult with qualified tax professionals in both the United States and India before making tax-related decisions. Neither VisaVerge nor its authors assume any liability for actions taken based on the information provided in this article.