India–Singapore DTAA: Capital Gains, Residency, NRI Startup Reliefs

(SINGAPORE) India and Singapore moved to reaffirm the ground rules of their tax treaty for cross-border workers, investors, and young companies in 2025, keeping in place the post-2019 framework that taxes most share sales in India while still offering lower rates on passive income and clear residency reliefs. The India–Singapore DTAA, first signed in 1994 and updated through 2017, remains central to tens of thousands of Non-Resident Indians in Singapore and Indian founders who set up holding entities in the city-state.

With about 650,000 Indians living, studying, or running businesses in Singapore, the treaty’s steady application continues to shape how salary, interest, dividends, royalties, and capital gains are treated on both sides of the corridor.

Capital gains: the unchanged, sensitive rulebook

At the heart of this year’s guidance is an unchanged, but still sensitive, rulebook on capital gains.

• Share disposals by Singapore residents in Indian companies, once exempt, have since 2019 been fully taxable in India unless those investments were made before 1 April 2017 and fall under grandfathering protections.
• This aligns the India–Singapore DTAA with similar changes in the India–Mauritius protocol, ending the era when many investors routed India portfolios through Singapore to avoid Indian capital gains tax.
• The transitional relief between April 2017 and March 2019 (a 50% rate cut subject to Limitation of Benefits checks) has expired. Both governments signal no fresh carve-outs for share transactions.

Implication:
– For private investors, family offices, and funds resident in Singapore, capital gains on Indian equities purchased on or after 1 April 2017 are taxed in India. Many investors now plan exits with the Indian tax bill explicitly modeled.

Where the treaty still helps: capped withholdings and business profits

Other parts of the treaty continue to soften the impact for cross-border taxpayers:

• Withholding caps
  • Dividends and interest: generally capped around 10%
  • Royalties and technical fees: typically in the 10–15% range
• Business profits
  • Taxed primarily in the country where the enterprise has a permanent establishment. Singapore companies without a fixed place of business in India can limit Indian tax on cross-border sales or services.
• Students
  • Scholarships and stipends are tax-exempt in the host country, providing relief for families financing higher education in Singapore.

These steady rates and clear lines help Indian startups with Singapore group companies manage cash flow for software, brand, or technical support payments.

Timeline recap and practical fallout

The sequence of changes has practical consequences for deal structures:

1. Before 1 April 2017
   • Singapore-based investors could often exit without Indian tax if they showed real ownership and substance in Singapore.
2. 1 April 2017 – 31 March 2019
   • Two-year transition halved Indian tax for qualifying investors who met the Limitation of Benefits (LOB) test.
3. After 1 April 2019
   • Full Indian capital gains tax applied to shares; Singapore retained relief only for some non-share assets and grandfathered investments.

Result:
– Funds that invested before 1 April 2017 still watch grandfathering closely.
– Newer funds treat Indian tax as a built-in cost when modeling returns.

Residency, credits and student reliefs

The treaty clarifies residency and relief mechanics that matter to individuals splitting time between the two jurisdictions:

• Workers: pay tax where they perform the work — helps salaried professionals avoid double taxation on the same paycheck.
• Double taxation relief: India uses the credit method: taxpayers claim a credit in India for foreign tax already paid.
• Students and trainees: scholarships and stipends are taxed separately (generally tax-exempt in the host country).

These provisions keep the DTAA relevant for families, young workers, and students moving between India and Singapore.

Limitation of Benefits (LOB) and substance requirements

The LOB clause from the 2016–2017 updates is critical to claiming treaty relief:

• Purpose: prevent treaty shopping via letterbox companies.
• Practical tests include:
  • Office lease and local employees
  • Invoices and tangible revenue activity
  • Often annual operational spending of at least S$200,000
  • Evidence of decision-makers and real business operations

Control by non-residents can be a red flag. The test aims to cut treaty shopping while preserving relief for genuine trade and services.

Documentation and filings: what authorities expect

Documentation is central to successful claims under the DTAA:

• Key documents
  • Tax Residency Certificate (TRC) from the Inland Revenue Authority of Singapore — a cornerstone proof.
  • India’s Form 10F and a statement confirming no permanent establishment in India.
  • Evidence of foreign taxes paid (notices of assessment, salary tax slips).
  • Where applicable, proof of substance (office, staff, contracts, spending).
• Filings
  • Non-residents earning income from India must file Indian returns and claim treaty credit in Schedule TR.
  • In Singapore, taxpayers disclose foreign income when required under local rules.

Common compliance errors:
– Missed renewals of the Singapore TRC
– Failures to report overseas accounts under global data-sharing rules (CRS/FATCA)
– Treaty claims via shell entities inviting anti-avoidance scrutiny in India

Startups and founders: mixed realities

Views from the startup community show a split picture:

• Continued attractions
  • Easier access to venture capital and familiar legal systems in Singapore.
  • Treaty-backed withholding caps help cash management, especially for software licensing and technical services.
• Changed behavior
  • The end of the old capital gains exemption reshaped exit planning and secondary sales.
  • Founders now model after-tax proceeds in India and ensure their Singapore entities show real decision-making and a footprint to pass substance checks.

Practical tips for employees, students and executives

• For salaried Indians on Employment Passes and S Passes:
  • Track where work is performed.
  • Keep payslips, year-end statements, and tax assessments from the country where income was first taxed.
  • These documents support a credit claim under the treaty.
• For students:
  • Keep scholarship letters.
  • If working part-time or interning, confirm where that income is taxed and how it fits the treaty.

Broader economic context and enforcement

• Singapore is among India’s largest sources of foreign direct investment — flows can top US$22 billion a typical year.
• The treaty helps limit surprises for routine flows: interest on group loans, service fees, license payments, dividends.
• Information exchange (FATCA, CRS) raises enforcement risks for undisclosed accounts and artificial structures.

Social security talks and permanent establishment questions

• Social security: no full-fledged social security agreement yet, but talks continue. If introduced, portability of retirement contributions would improve outcomes for long-term mobile professionals.
• Permanent establishment (PE):
  • Principle: without a fixed place of business or dependent agent in India, business profits are not taxed there.
  • Modern work patterns (remote teams, cloud, online sales) keep legal and tax teams alert for facts that could create a PE.

Common mistakes to avoid (practical checklist)

1. Renew the Singapore TRC annually — don’t let it lapse.
2. Avoid claiming old capital gains exemptions without meeting substance standards.
3. Disclose foreign assets in Indian returns and comply with global data-sharing rules.
4. Maintain real substance: office, staff, contracts, and operational spending.

Where treaty provisions appear (quick reference)

• Article 7 — Business profits
• Articles 10–12 — Dividends, interest, royalties
• Article 13 — Capital gains
• Article 20 — Students
• Article 25 — Tax relief methods (credit method)

Key takeaway: show the tax paid in Singapore, apply for a credit in India, then pay any balance due under Indian law.

For startups and software firms: why royalties and technical fees matter

• Treaty-capped withholdings are crucial for SaaS, AI, and software firms that operate across both markets.
• Even small differences (10% vs 15%) can affect early-stage runway and hiring decisions.
• Predictability helps budgeting and cash management from day one.

Final reminders for 2025

• Letterbox companies no longer pass muster; substance matters. Practical benchmark often cited: at least S$200,000 in annual operating costs with real people, contracts, and an office.
• Grandfathering for capital gains is narrow: it applies to shares purchased before 1 April 2017 only. New investments into Indian equities by Singapore residents are taxed in India.
• Administrative burden is manageable if documents are current and filings are accurate. Those who cut corners may face more time and cost later.

The treaty’s core rules in 2025 remain steady:
– Capital gains on Indian shares taxed in India unless grandfathered;
– Dividends, interest, and royalties subject to capped withholding;
– Students’ scholarship income generally tax-free in the host country;
– Business profits governed by the permanent establishment principle.

For official residency documentation in Singapore, taxpayers can refer to the Inland Revenue Authority of Singapore’s guidance on the Certificate of Residence, which outlines how individuals and companies establish tax residency for treaty claims: IRAS Certificate of Residence.