—Guide
Claiming Tax Treaty Benefits in India: TRC, Form 10F and the Principal Purpose Test
How non-residents claim treaty benefits in India: the Tax Residency Certificate, Form 10F, beneficial ownership, and the principal purpose test.
India's tax treaties can significantly reduce, or even eliminate, Indian tax on income earned by non-residents. But the benefits aren't automatic. The recipient has to prove eligibility, and anti-abuse rules can deny them. This guide explains what's needed.
Who Can Claim
Treaty benefits are available to residents of the treaty partner country. A taxpayer can apply the treaty or Indian domestic law, whichever is more beneficial.
The Tax Residency Certificate (TRC)
The recipient must obtain a TRC from the tax authority of its country of residence, covering the relevant period. Without a TRC, treaty benefits can't be claimed.
Form 10F
Where the TRC doesn't contain all the prescribed particulars — such as status, nationality, tax identification number, and address — the recipient provides them in Form 10F, filed electronically on the Indian income-tax portal.
Other Documents
- A declaration that the recipient has no permanent establishment in India, where business profits or certain other income are involved.
- A declaration of beneficial ownership, for dividends, interest and royalties.
- PAN, or specified alternative documents, to avoid a higher withholding rate.
Beneficial Ownership
Reduced treaty rates on dividends, interest and royalties usually apply only if the recipient is the beneficial owner of the income — not merely a conduit passing it to someone else.
The Principal Purpose Test
Through the Multilateral Instrument, many of India's treaties now include a principal purpose test. Treaty benefits can be denied if obtaining them was one of the principal purposes of an arrangement or transaction, unless granting them would be in line with the treaty's object and purpose. Structures without commercial substance are most at risk.
Domestic Anti-avoidance Rules
India's general anti-avoidance rules can also apply to impermissible avoidance arrangements, within their thresholds and conditions.
Practical Steps
- Identify the treaty and the relevant article for the income.
- Collect a current TRC and Form 10F.
- Obtain PE and beneficial ownership declarations where relevant.
- Document the commercial substance of the arrangement.
- Renew documents for each period.
Getting Help
Think Filing advises on treaty positions and documentation for payments to and from non-residents.