The India-US Tax Treaty, Article by Article: A Deep Dive for Anyone With Income on Both Sides of the Border

A Bay Area engineer, Indian citizen, US green card holder, calls in February with two problems that look unrelated and are not. His Indian bank deducted 30% TDS on his NRO fixed deposit interest, and his US accountant just told him the Indian mutual funds his father gifted him are PFICs that will cost more in compliance than they earn. Both problems run through the same document, the India-US Double Taxation Avoidance Agreement, and both have clean answers once you read the treaty the way a tax officer reads it: article by article, knowing which article governs which rupee, and knowing where the treaty helps and where it does nothing at all.

The 30-second answer: The India-US treaty does not cap capital gains tax (Article 13 leaves each country to apply its own law), so the famous UAE zero-tax route does not exist here. It does cap interest at 15% (Article 11) and dividends at 25% for individuals (Article 10, the 15% rate is corporate-only). Relief is by foreign tax credit under Article 25, claimed on Form 67 in India and Form 1116 in the US. The saving clause (Article 1(3)) lets the US tax its citizens and green card holders as if the treaty did not exist, with carve-outs. To get treaty rates on Indian income you file Form 10F plus a TRC; to get them on US income you file Form W-8BEN. Roth and 401k treatment in India is partly unsettled; Section 89A defers the timing mismatch.

This guide assumes you already know what an NRO account is, what RNOR means, and the broad idea that a DTAA exists; if not, start with the general DTAA relief guide and the residency rules. What follows is the US-specific deep dive: which article governs each kind of income, the exact rates in both directions, how the credit actually clears on each side, the saving clause that quietly claws back treaty benefits for green card holders, and the retirement-account interactions where the treaty runs out of answers.

First decide which country you are a resident of, because everything hangs on it

Before any rate applies you have to know which country the treaty treats you as a resident of, and for people with a foot in both countries that is not obvious. Article 4 defines a resident as someone liable to tax in a country by reason of domicile, residence, citizenship, place of management, or a similar criterion. The trap is that you can be a tax resident of both at once: India by spending 182 days or crossing the 60-day-plus-365 test, the US by being a green card holder or meeting the substantial presence test. When both claim you, the treaty does not let both tax you as a resident. It runs a tie-breaker in strict sequence.

The order is fixed and you stop at the first test that resolves it. First, where do you have a permanent home available to you. If you keep a home in both, second, where is your centre of vital interests, meaning where your personal and economic ties are stronger. If that is inconclusive, third, where is your habitual abode, which country you actually live in more. If still tied, fourth, your nationality decides. If you are a national of both or neither, the two tax authorities settle it by mutual agreement procedure under Article 27. The detailed mechanics, and how to document a permanent-home claim, are in the tie-breaker guide; the point to carry here is that the tie-breaker decides who is the "residence country" and who is the "source country" for every later article, and for a US green card holder there is a sting waiting in the saving clause that the tie-breaker does not escape.

Article 11, interest: the 15% cap that fixes your NRO TDS

Start with the problem that brings most US-resident NRIs to the treaty, the 30% TDS on NRO interest. India's domestic rate on interest paid to a non-resident under Section 195 is 30% plus surcharge and cess, roughly 31.2% at the base. The bank applies that by default because it has no instruction to do otherwise. Article 11 of the India-US treaty caps the source-country tax on interest at 15% of the gross amount in the ordinary case, and 10% where the interest is paid on a loan from a bank or financial institution. NRO interest is ordinary interest, so your ceiling is 15%, not 31.2%.

Put real numbers on it. Take Arjun, a US tax resident, with Rs 10,00,000 of NRO fixed deposit interest in the year. Without treaty relief the bank deducts 30% plus 4% cess, about Rs 3,12,000, and locks it up until he files an Indian return to claim back the excess. With a valid Tax Residency Certificate and Form 10F lodged with the bank before the interest is credited, the bank deducts the treaty rate of 15%, about Rs 1,50,000. That is Rs 1,62,000 that stays in his account instead of financing the government's float for fourteen months. He still owes US tax on the same interest as worldwide income, but he claims a foreign tax credit for the Rs 1,50,000 of Indian tax, so he is not taxed twice. The documentation that makes the bank apply 15% rather than 30% is covered in DTAA mechanics, TRC and Form 10F and in the NRO interest tax guide; the treaty rate is useless if the paperwork is not in the bank's hands before the credit date.

Run the same article the other way. An Indian resident holding a US savings or brokerage account earns US-source interest. US domestic withholding on interest paid to a non-resident is generally 30%, but most portfolio interest from US banks and US Treasuries is exempt from US withholding entirely under domestic law, so the treaty's 15% cap rarely even binds. Where it does, you file a W-8BEN claiming Article 11 and the payer withholds at 15%.

Article 10, dividends: why an individual gets 25%, not the 15% everyone quotes

This is the article where bad blog advice does real damage. People read "15% under the treaty" and assume it applies to them. It does not. Article 10 caps dividend withholding at 15% only for a company that owns at least 10% of the voting stock of the payer. For everyone else, including every individual investor, the cap is 25%. An individual NRI never qualifies for the 15% rate on the India-US treaty, full stop.

That cuts differently in each direction. On US dividends paid to an Indian resident, the US default withholding is 30% on a W-9 or with no form; filing a W-8BEN claiming the treaty brings it to 25%. So for an Indian resident holding US stocks directly, the treaty saves five percentage points, not fifteen. Take Priya, an Indian resident, with USD 10,000 of US dividends. With no W-8BEN the broker withholds 30%, USD 3,000. With a W-8BEN claiming Article 10 the broker withholds 25%, USD 2,500, a saving of USD 500. She then reports the dividend in India at slab and claims a credit for the USD 2,500 of US tax via Form 67.

On Indian dividends paid to a US resident, the treaty's 25% is actually worse than Indian domestic law. Since dividends became taxable in the shareholder's hands in 2020, India deducts TDS on dividends to non-residents under Section 195 at 20% plus surcharge and cess. Because the treaty only ever caps, never raises, you take the lower of treaty and domestic, so you simply use the 20% domestic rate and ignore the treaty here. This is the general rule worth memorising: the treaty helps only when its rate is below domestic law. On Indian dividends to a US person it is not, so it does nothing.

Article 13, capital gains: the article that does nothing, and why that matters

Here is the single most important thing a US-resident NRI must understand, and the cleanest line of demarcation from the Gulf NRIs. Article 13 of the India-US treaty does not allocate taxing rights on most capital gains and does not cap the rate. It says each country may tax gains in accordance with its own domestic law. There is no equivalent of the India-UAE provision that makes share gains taxable only in the country of residence.

What that means in practice is stark. A US-resident NRI selling Indian listed shares or equity mutual funds pays the full Indian rate under Section 115AD: 12.5% long-term on gains above Rs 1.25 lakh, 20% short-term, plus surcharge capped at 15% and cess. The treaty offers no reduction. Compare a Dubai resident selling the identical shares, who can face zero Indian tax under that treaty. The detail of how 115AD computes the bill is in the capital gains guide; the point here is that on the India-US treaty your only protection against double tax on capital gains is the foreign tax credit, not a treaty rate. You pay India, then credit that Indian tax against your US capital gains tax on the same sale.

The mechanism is worth showing because the two countries compute the gain differently. Suppose a US resident, Sanjay, sells Indian equity held four years for a long-term gain of Rs 40,00,000 (about USD 48,000 at Rs 83). India taxes it under 115AD: the first Rs 1.25 lakh is exempt, leaving Rs 38,75,000 at 12.5%, about Rs 4,84,375 plus cess, roughly Rs 5,03,750 total, around USD 6,069. The US then taxes the same gain as long-term capital gain, say at a 15% federal rate plus a 3.8% net investment income tax, about 18.8% on USD 48,000, or USD 9,024. Under Article 25 the US gives a credit for the Indian tax paid, USD 6,069, so Sanjay's net US bill is USD 9,024 minus USD 6,069 = USD 2,955, and his total worldwide tax is the higher of the two countries' rates, the US 18.8%, not the sum. Had he wrongly assumed the treaty zeroed the Indian tax, he would have under-withheld in India and faced interest and penalty there. The treaty did not lower his total tax; it only stopped him paying both in full.

Article 12, royalties and fees for included services: a real 15% cap, often misapplied

For an NRI earning royalties or fees for technical or consulting services across the border, Article 12 does cap the rate, and unlike dividends it is a cap that often beats domestic law. The treaty rate is 15% on royalties and fees for included services in the general case, and 10% for the use of industrial, commercial or scientific equipment and certain ancillary services. India's domestic rate on royalties and fees for technical services to non-residents under Section 115A is currently 20% plus surcharge and cess, so for a US resident receiving Indian-source royalties the treaty's 15% genuinely undercuts domestic law and is worth claiming with a Form 10F and TRC.

The trap here is for the Indian-resident freelancer billing US clients. A US payer faced with an invoice from an Indian consultant will default to 30% withholding on US-source service income unless you hand them a W-8BEN claiming the treaty. Many Indian freelancers never file it and lose 30% at source on income the treaty caps far lower, then struggle to recover it. If your work is genuinely performed in India and you have no US fixed base, much of it may be business profits taxable only in India under Article 7 rather than royalties at all, but you still need the W-8BEN on file for the payer to stop over-withholding. The W-8BEN and Form 10F mechanics for this exact situation are in DTAA mechanics.

Salaries and pensions: Articles 16, 19 and 20, and where the saving clause bites

Employment income under Article 16 is taxable where the work is physically performed, with the usual short-stay exemption for fewer than 183 days where the employer is not resident in the work country and the cost is not borne by a permanent establishment there. For most settled NRIs this just means your US salary is US-taxed and your Indian salary, if any, is India-taxed, with the residence country giving credit on the overlap.

Pensions are where the articles diverge and where the saving clause matters most. Government service pensions under Article 19 are generally taxable only in the paying country. Private pensions, annuities, alimony and child support under Article 20 are taxable only in the country of residence, and crucially, social security and other public pensions are taxable only in the paying state. So US Social Security paid to an Indian resident is, by the treaty, taxable only in the US, and a private US pension or periodic IRA-type distribution paid to an Indian resident is taxable only in India.

The complication for the very common case, an Indian citizen who is a US green card holder or citizen, is the saving clause in Article 1, paragraph 3: the US may tax its citizens and residents "as if the Convention had not come into effect." That means a green card holder cannot use Article 20 to escape US tax on a US pension by pointing to Indian residence; the US taxes it regardless. Paragraph 4 carves out specific protections that survive the saving clause, including parts of Article 20 (private pensions and social security), Article 25 (relief from double taxation, so the credit always survives), Article 26 (non-discrimination) and Article 27 (mutual agreement). The honest summary: if you hold a green card or US citizenship, assume the US taxes your worldwide income first and the treaty mostly governs the credit, not an exemption.

Article 25, the credit, in both directions, with the forms that actually clear it

Article 25 is the engine that prevents double tax once you accept the treaty rarely zeroes a rate. It is a credit treaty, not an exemption treaty: each country taxes what its rules allow, and the residence country gives a credit for tax paid to the source country, limited to the residence country's own tax on that income. The limitation is the part people forget. The credit can never exceed your home tax on that slice of income, so if the source country taxed it harder than your home country would, the excess is not refunded; it is simply lost (or carried, in the US case).

Running it from India to the US, an Indian resident with US income claims the credit on Form 67, which must be filed on the income tax portal before or with the Indian return for the credit to be allowed; file it late and the officer can deny the credit even though the foreign tax was genuinely paid. The detailed Form 67 procedure, the exchange-rate rules and the documentary proof required are in the Form 67 guide.

Running it from the US to India, a US person with Indian income claims the credit on Form 1116, separating income into categories (passive, general) and applying the same limitation: the credit cannot exceed the US tax on that Indian income. Indian tax in excess of the US tax on that income carries back one year and forward ten. This is why the capital gains example above leaves a net US bill rather than a refund: the US credit is capped at US tax on the gain.

Here is the asymmetry that catches people. Tax years differ, India runs April to March and the US runs the calendar year, so income taxed in India in one year may fall in a different US year, and you must align them carefully or the credit limitation calculation goes wrong. And the credit is per country and per income category, so high Indian tax on interest cannot subsidise a shortfall of credit on US-taxed dividends. Plan the credit before you transact, not at filing.

Article 28, the limitation on benefits, and the saving clause once more

Two anti-abuse provisions decide whether you get the treaty at all. Article 28 is a limitation-on-benefits clause aimed at treaty shopping; for a genuine individual resident of one country it is rarely an obstacle, but it is the reason the substance of your residence has to be real, not a convenience address. The saving clause is the one that reshapes outcomes for the largest group of readers, US green card holders and citizens of Indian origin. Because it lets the US tax them as if the treaty did not exist, the practical posture for a green card holder is: the US taxes your worldwide income at full US rates, the treaty articles mostly do not exempt you, and your protection from double taxation is the Article 25 credit plus the paragraph-4 carve-outs. An Indian citizen on an H-1B who is a US tax resident but not a green card holder is in a softer position on some articles but is still a US resident for the saving clause once they meet substantial presence.

The Roth, 401k and PFIC interactions, where the treaty runs out of clean answers

This is the part no general DTAA guide covers properly, and where the treaty's silence costs people the most.

A traditional 401k or IRA has a relatively clean answer. While you are in the US it grows tax-deferred. When you return to India and become Resident and Ordinarily Resident, a periodic pension-type distribution is, under Article 20, taxable only in India at your slab rate, and a properly filed W-8BEN citing Article 20 can drop US withholding toward zero on periodic payments, leaving only the Indian tax. A lump-sum withdrawal does not get Article 20 periodic-payment treatment and stays subject to default US withholding (commonly 30% for a non-resident, plus the 10% early-withdrawal penalty if under 59 and a half), which you then credit against Indian tax. The cleaner planning move is often to withdraw during your RNOR window, the first two to three years after return when foreign income is not taxed in India, so the distribution faces only US tax. The two-country retirement sequencing is the subject of the retirement planning guide.

The Roth is genuinely unsettled, and the style here is to say so rather than pretend. A Roth is US tax-free on qualified withdrawal because you already paid tax on contributions. The India-US treaty has no Roth article. The open question is whether India must respect the Roth's tax-free character once you are ROR. The conservative and common practitioner view is that India does not, and will tax Roth withdrawals as ordinary foreign income at slab, giving credit only for US tax actually paid, which on a qualified Roth is zero, so you can end up paying full Indian tax on money that was supposed to be tax-free forever. Some argue Article 20's "pension" language should shelter it; that position is debated and untested for most situations. Do not build a retirement plan on the Roth being India-exempt without a written professional opinion for your facts.

Section 89A addresses a narrower but real problem, the timing mismatch. India would otherwise tax the accrual of income inside a US retirement account year by year, while the US taxes only the withdrawal, creating a credit mismatch where Indian tax falls in years with no US tax to credit. Section 89A, with Form 10EE filed before the return, lets a resident elect to be taxed on these specified US (and UK and Canada) retirement accounts on a withdrawal basis aligned with the US, removing the mismatch. It does not make the income tax-free in India; it only fixes the timing so the foreign tax credit lines up.

PFIC is the mirror-image trap that hits US persons holding Indian mutual funds. Every Indian mutual fund is, to the US, a Passive Foreign Investment Company. The US taxes PFICs punitively: the default Section 1291 regime taxes gains and "excess distributions" at the highest ordinary rates with an interest charge for deferral, and the annual Form 8621 compliance is expensive. The treaty does nothing here; PFIC is a US domestic anti-deferral rule the treaty does not override. The practical consequence is that a US person should generally not hold Indian mutual funds at all, and should hold Indian equity exposure through direct stocks or US-domiciled India funds instead. This is exactly the engineer's second problem from the opening: the gifted Indian mutual funds are PFICs, and the fix is usually to exit them cleanly and rebuild the exposure in a non-PFIC wrapper, not to try to plan around the regime.

A rate map for the income you actually have

Income type	Governing article	India-US treaty rate (source country)	The thing to watch
Interest (NRO, US bank)	Article 11	15% general, 10% bank loans	File Form 10F before interest credit to beat 30% TDS
Dividends	Article 10	25% for individuals, 15% only for 10%+ corporate holder	On Indian dividends use 20% domestic, treaty does not help
Capital gains	Article 13	No cap, domestic law applies both sides	Relief is FTC only, not a rate; no UAE-style exemption
Royalties / fees for included services	Article 12	15% general, 10% equipment	Beats India's 20% domestic; W-8BEN stops US 30% over-withholding
Employment	Article 16	Taxed where performed	183-day short-stay exemption conditions
Government pension	Article 19	Paying country only	Distinct from private pensions
Private pension / annuity	Article 20	Residence country only	Saving clause lets US tax its citizens or green card holders anyway
Social security / public pension	Article 20	Paying state only	Survives the saving clause (paragraph 4)

Edge cases

The "as if the treaty did not exist" problem for green card holders. The single most misread part of the treaty is the saving clause. A US green card holder of Indian origin cannot use Article 20 or most other articles to exempt US-source income from US tax; the US taxes them on worldwide income and the treaty mainly governs the credit. If a blog tells you the treaty exempts your US pension and you hold a green card, it is wrong for you specifically.

Tax-year misalignment wrecking the credit limitation. Because India runs April to March and the US the calendar year, the same income can land in different tax years in each country, and the foreign tax credit limitation (and the carryover) is computed year by year. A US dividend taxed in the US in calendar 2026 may sit in Indian FY 2025-26 or FY 2026-27 depending on receipt date, and a careless alignment can strand part of the credit. Map each income item to both years before filing.

The 25% dividend rate is a cap, not a floor, and often irrelevant. On Indian dividends to a US resident, domestic Section 195 at 20% beats the treaty's 25%, so you use domestic law. Treaty rates only ever reduce; they never let a country tax above its domestic rate, and they do not force you to use the treaty rate when domestic is lower.

Roth being treated as taxable in India is the conservative default, not a settled rule. The treaty has no Roth article and the Indian treatment is debated. Plan for India taxing Roth withdrawals at slab unless you have an opinion to the contrary; do not assume the US tax-free character carries over.

TRC validity and timing. A US TRC is Form 6166, issued by the IRS on application via Form 8802, and it can take weeks. Indian payers want the TRC and a Form 10F for the relevant Indian financial year before they apply a treaty rate. Apply for Form 6166 well ahead of the Indian interest or income credit date, because a treaty rate claimed without the certificate in hand at deduction time is routinely refused at source.

The closing read

The honest read is that the India-US treaty is a credit treaty that helps a lot on interest and royalties, helps modestly on dividends, and does nothing on capital gains, which is the opposite of what most NRIs assume after one Google search. So for most people with income on both sides: file your Form 10F and TRC with every Indian bank and registrar before the income is credited so your NRO interest is taxed at 15% rather than 30%, and file your W-8BEN with every US payer so US income is withheld at the treaty rate rather than 30%. Treat capital gains as fully taxable in the source country and rely on the Article 25 credit (Form 67 in India, Form 1116 in the US) to stop double tax, and align your tax years deliberately so the credit limitation does not strand part of it. If you are a green card holder, assume the saving clause means the US taxes you first on worldwide income and plan around the credit, not an exemption. And on retirement accounts, withdraw from a 401k during your RNOR window if you can, use Section 89A to fix the timing mismatch, get a written opinion before you bet on a Roth being India-exempt, and do not hold Indian mutual funds as a US person because of PFIC. The treaty is a precision instrument; it rewards the person who knows which article governs which rupee and punishes the one who assumes it zeroes everything.

Related guides

• DTAA relief for NRIs
• DTAA mechanics: TRC, Form 10F and Section 90
• Foreign tax credit and Form 67
• The DTAA tie-breaker and dual residency
• NRI residency and RNOR rules
• Tax on NRO interest
• RSU and ESOP taxation for NRIs
• Capital gains tax for NRIs on shares and mutual funds
• Retirement planning across two countries
• All Taxation guides
• All Banking guides
• All Investments guides

This guide is educational and general in nature. It is not individual tax advice. Treaty outcomes depend on your exact residency, citizenship or green card status, the income type, and which country's domestic law applies, and several positions here (notably the Roth treatment and parts of Article 20 under the saving clause) are genuinely debated, so confirm your specific position with a qualified chartered accountant and a US tax professional before you act.