How do tax treaties (DTAAs) apply to Indian service exporters?

When a designer in Pune invoices a London agency, or a software firm in Hyderabad bills a client in Texas, two countries could in principle tax the same fee: India, because the exporter is resident here, and the client's country, because the money comes from there. A double taxation avoidance agreement (DTAA), also called a tax treaty, settles which country gets to tax which kind of income, and caps the tax the source country may take.¹

This guide explains how treaties work for Indian service exporters as of October 2026, which articles to read, and which Indian forms apply under the Income-tax Act, 2025, which came into force on 1 April 2026.⁹ It uses the India-US and India-UK treaties as examples. Treaty outcomes depend on facts such as where the work was done and what was sold, so confirm your position with a chartered accountant (CA) before relying on it.

What is a DTAA and which Indian law gives it effect?

A DTAA is an agreement between India and another country that the Central Government enters into under section 159 of the Income-tax Act, 2025, for relief from double taxation, avoidance of double taxation, exchange of information and recovery of tax.¹

• Treaty override: section 159(4) says that where such an agreement applies, the Act applies to the taxpayer "to the extent they are more beneficial" to that taxpayer.¹
• Old section: section 159 replaced section 90 of the Income-tax Act, 1961, which had the same structure.¹⁸
• No treaty: where India has no treaty with a country, section 160 gives a resident relief for foreign income-tax paid on doubly taxed income, at the Indian rate of tax or the foreign rate, whichever is lower.²

A treaty can only reduce tax compared with the Act, because the more beneficial provision applies.¹

Who does a DTAA apply to in Indian service exports?

A DTAA applies to Indian residents earning fees from clients in a treaty country, and to non-residents paid by Indian businesses, with different articles and forms for each.¹⁴⁵⁷

Which row applies depends on the type of payment and where the work was done.

How do you apply a tax treaty to a fee from a foreign client?

You apply a tax treaty to a fee from a foreign client by reading the right treaty text, matching the fee to an article, checking your presence abroad, and then handling forms and credit.¹³⁴⁵

1. Read the right treaty text: read the treaty as amended by every protocol, plus the Multilateral Instrument (MLI) changes where both countries apply the MLI. HMRC, for example, publishes the 1993 UK-India Convention as amended by the 2013 Protocol, and a separate synthesised text showing where the MLI modifies it.⁵⁶
2. Identify the income type: business profits, independent personal services, or royalties and technical service fees.⁴⁵
3. Check presence abroad: a permanent establishment, a fixed base, or a stay of 90 days or more can let the client's country tax the fee.⁴⁵
4. Give the client its forms: the client's country may ask for Form W-8BEN or W-8BEN-E for a US payer, and sometimes proof that you are resident in India.¹⁰
5. Claim credit for tax withheld: file Form No. 44 within twelve months from the end of the tax year, provided the return is filed on time.³

The synthesised text records that MLI Article 7, a principal purposes test, replaces Article 28C of the UK-India treaty, and that MLI Article 13 modifies Article 5(3).⁶ The India-US treaty on the IRS site includes the 1989 Protocol, exchanges of notes and a memorandum of understanding on fees for included services.⁴

Which DTAA articles decide where an Indian exporter's fee is taxed?

The DTAA articles that decide where an Indian exporter's fee is taxed are mainly business profits, independent personal services, and royalties and technical service fees, with the permanent establishment article setting the threshold.⁴⁵ Article numbers differ between treaties, so check the one with your client's country.

The rows above come from the treaty texts published by the IRS and HMRC, and the gov.uk synthesised text for the MLI change.⁴⁵⁶

• Business profits (Article 7): the profits of an enterprise are taxable only in its home country unless it carries on business in the other country through a permanent establishment there. This is the article an agency, LLP or company usually relies on.⁴⁵
• Independent personal services (Article 15): for individuals, the India-US treaty taxes professional income only in India unless the person has a fixed base regularly available in the US or stays there 90 days or more in the relevant taxable year.⁴ The India-UK treaty lets the UK tax services performed there if the person is present for 90 days in the fiscal year or has a fixed base there.⁵
• Royalties and technical fees (Article 12 US, Article 13 UK): the client's country may tax these, but only up to a capped percentage of the gross amount, generally 15% or 10% depending on the type of payment.⁴⁵
• Service PE (Article 5): services furnished in the other country can create a PE, for example through employees or other personnel present there for more than 90 days within any twelve-month period.⁴⁵

For example, a video editor in Kochi edits a documentary for a US production house without travelling. Under Article 15 of the India-US treaty, that income is taxable only in India unless the editor has a fixed base in the US or spends 90 days there in the year.⁴ By contrast, if an Indian firm licenses a copyright in its course content to a UK publisher, the payment is a "royalty" under Article 13(3)(a) of the India-UK treaty and the UK may tax it at up to 15% of the gross amount.⁵ See permanent establishment risk for freelancers for the treaty text.

What documents and forms does a DTAA claim need?

The documents for a DTAA claim depend on which country is applying the treaty: the client's country asks for its own forms, and India asks a non-resident for a TRC and Form No. 41.¹⁷¹⁰

• The client's country applies the treaty: it asks for its own forms, such as Form W-8BEN or W-8BEN-E for a US payer, and sometimes proof that you are resident in India.¹⁰ An Indian resident obtains a certificate of residence by applying in Form No. 42 to the Assessing Officer, who issues it in Form No. 43 under rule 75(3) and (4).⁷ See tax residency certificate, W-8BEN for freelancers and W-8BEN-E for companies.
• India applies the treaty to a non-resident: when an Indian business pays a foreign contractor, the contractor can claim treaty relief in India only with a tax residency certificate from its own government and the information prescribed in Form No. 41, under section 159(8) and rule 75(1).¹⁷ See Form 10F and Form 41 filing.

The section and form numbers changed when the Income-tax Act, 2025 came into force on 1 April 2026, though the rules are largely the same.⁹

The table is based on section 90 of the 1961 Act, section 159 of the 2025 Act, and rules 75 and 76 of the 2026 Rules.¹³⁷⁸ The Form 41 change and the Form 44 change have their own pages.

What happens if a foreign client withholds tax from an Indian exporter's fee?

If a foreign client withholds tax from an Indian exporter's fee, India gives the resident credit for that foreign tax under rule 76 of the Income-tax Rules, 2026, limited to the Indian tax on that income.³

• Credit limit: the credit is the lower of the Indian tax on that income and the foreign tax paid.³
• Excess withholding: any foreign tax above the treaty rate is ignored.³
• Claim: made in Form No. 44, filed within twelve months from the end of the tax year, provided the return is filed on time.³
• Treaty basis: Article 25(2) of the India-US treaty and Article 24(2) of the India-UK treaty require India to allow the foreign tax as a deduction or credit, limited to the Indian tax attributable to that income.⁴⁵

The step-by-step claim is covered in foreign tax credit with Form 67 and Form 44, and the reasons clients withhold in foreign withholding tax.

How is foreign tax credit under a DTAA calculated?

Foreign tax credit under a DTAA is calculated as the lower of the foreign tax paid and the Indian tax on that income, ignoring any foreign tax charged above the treaty rate.³

Say an Indian firm licenses a copyright in its course content to a UK publisher for $10,000, and the UK withholds 15%, the Article 13 cap for that royalty, which is $1,500.⁵

1. Foreign tax within the treaty rate: $1,500, because 15% is the cap under Article 13(3)(a).⁵
2. Indian tax on that income: worked out under the Indian tax rules that apply to the firm.³
3. Credit: the lower of step 1 and step 2.³ If the Indian tax on that $10,000 is the equivalent of $1,200, the credit is $1,200; if it is $1,800, the credit is $1,500.³
4. Excess withholding: if the UK had withheld more than 15%, the part above the treaty rate would be ignored for credit.³

The figures are an illustration of rule 76, so work out your own Indian tax with a chartered accountant.³

What are the common mistakes with DTAAs for Indian service exporters?

The common mistakes with DTAAs for Indian service exporters are assuming the treaty removes Indian tax, reading an outdated treaty text, and missing the Form 44 deadline.³⁶

• Assuming no Indian tax: a resident is taxed in India, and the treaty only allocates taxing rights and gives credit.³
• Old treaty text: read every protocol and the MLI synthesised text where it applies.⁵⁶
• Wrong form: Form No. 41 is for non-residents; a resident applies for a TRC in Form No. 42.⁷
• Late Form 44: the claim is due within twelve months from the end of the tax year, with a timely return.³
• Wrong article: royalties and technical service fees can be taxed abroad at a capped rate, even where business profits would not be.⁴⁵

Treaty outcomes depend on facts, so confirm your position with a chartered accountant before relying on this page.