Cross-Border Taxation in India — DTAA, GAAR, BEPS, Equalisation Levy (2026)
Cross-border taxation India — DTAA, GAAR, BEPS, Equalisation Levy, transfer pricing, treaty benefits. For NRI, foreign investors, MNCs.
Cross-border taxation in India is complex. With DTAA, GAAR, BEPS, transfer pricing, and Equalisation Levy, the rules affect NRIs, foreign investors, and Indian businesses with foreign operations. In this guide, we cover the key concepts.
DTAA — Double Tax Avoidance Agreement
DTAA is a bilateral agreement between two countries to prevent double taxation. India has DTAA with 90+ countries. DTAA specifies: which country can tax which income, rates of tax (lower than domestic), and procedures for claiming relief.
Types of Income + Tax Treatment
| Income | Taxed In | Sourcing Rules |
|---|---|---|
| Salary | Country where services are rendered | India: salary for services in India is taxable in India (even if paid by foreign employer) |
| Business profits | Country where business is carried on | India: business connection / permanent establishment in India |
| Capital gains on property | Country where property is located | India: gains on Indian property are taxable in India |
| Capital gains on stocks | Country where the company is incorporated | India: gains on Indian company shares are taxable in India |
| Interest | Country where payer is resident | India: interest from Indian payer is taxable in India |
| Dividend | Country where paying company is resident | India: dividend from Indian company is taxable in India |
| Royalty / Fees | Country where payer is resident (most treaties) | India: royalty from Indian source is taxable in India |
DTAA Rates vs Domestic Rates
DTAA rates override the domestic TDS rates. The deductor must apply the lower of (DTAA rate, domestic rate). Common DTAA rates for India:
| Country | Dividend | Interest | Royalty | FTS |
|---|---|---|---|---|
| USA | 15% / 25% | 15% | 15% / 20% | 15% |
| UK | 10% / 15% | 10% / 15% | 15% | 15% |
| Singapore | 10% / 15% | 15% | 15% | 15% |
| UAE | 10% | 5% / 12% | 10% | 10% |
| Germany | 10% | 10% | 10% | 10% |
| Japan | 10% | 10% | 10% | 10% |
| Canada | 15% / 25% | 15% | 15% / 20% | 15% |
How to Claim DTAA Relief
- Step 1: Obtain Tax Residency Certificate (TRC) from the country of residence
- Step 2: Provide TRC + Form 10F to the deductor (employer, bank, tenant, buyer)
- Step 3: Deductor applies DTAA rate while deducting TDS
- Step 4: File ITR in India (ITR-2 / ITR-3 for NRI / foreign)
- Step 5: Claim DTAA relief in ITR (Schedule FSI + Schedule TR)
- Step 6: Claim credit for foreign tax paid (Section 90 / 91)
GAAR — General Anti-Avoidance Rule
GAAR (Section 96-115 of the Income Tax Act) is India's anti-avoidance rule. It empowers the IT officer to deny tax benefits if an arrangement is deemed to be: (a) entered into for the main purpose of obtaining a tax benefit, (b) lacks commercial substance, (c) not at arm's length.
GAAR applies from AY 2018-19 onwards. Threshold: investment ≥ ₹3 crore. Penalty: tax benefit denied + 200% penalty in some cases.
BEPS — Base Erosion and Profit Shifting
BEPS is an OECD initiative to prevent multinationals from shifting profits to low-tax jurisdictions. India has implemented several BEPS recommendations: transfer pricing documentation (Master File + CbCR), country-by-country reporting, interest deductibility limits, etc.
Equalisation Levy
Equalisation Levy (Chapter VIII of the Finance Act, 2016) is a 6% tax on online advertisement + specified digital services provided by non-residents. Later expanded to 2% on e-commerce transactions (sale of goods / services via digital platforms).
- Section 165A: 6% on online advertisement + digital services
- Section 165AA: 2% on e-commerce transactions (sale of goods / services via digital platforms by non-residents)
- Applies to: payments by Indian residents / PEs to non-residents
- Threshold: ₹1L per transaction (for 165A) / ₹2 crore annual (for 165AA)
- Withheld by: Indian payer (deduct at source)
- Reported in: Form 26Q (for 165A) / Form 26QE (for 165AA)
Transfer Pricing
Transfer pricing rules (Sections 92-92F) require related-party transactions to be at arm's length price. Applies to: international transactions + specified domestic transactions. Threshold: aggregate > ₹1 crore.
- Form 3CEB: Transfer pricing report (CA-signed)
- Due: 31 October (with ITR)
- Penalty: 100-300% of tax shortfall
- Advance Pricing Agreement (APA): pre-agreement with the IT department on TP
- Country-by-Country Report (CbCR): for multinational groups (revenue > €750M)
- Master File + Local File: documentation requirements
Key Considerations for Cross-Border Tax
- Get TRC + Form 10F before receiving any income
- Apply DTAA rate at source (lower TDS)
- Maintain proper documentation (invoices, agreements, payment proofs)
- File ITR with Schedule FSI + Schedule TR
- Claim foreign tax credit (Section 90 / 91)
- Beware of GAAR — ensure transactions have commercial substance
- TP documentation for related-party transactions
- Consider Equalisation Levy for digital services
Cost
| Service | Cost |
|---|---|
| DTAA advisory + lower TDS certificate | From ₹9,999 |
| Form 10F + TRC coordination | From ₹4,999 |
| Cross-border tax planning | From ₹14,999 |
| Transfer pricing report (Form 3CEB) | From ₹49,999 |
| Equalisation Levy compliance | From ₹9,999 |
| GAAR + BEPS advisory | From ₹24,999 |
Frequently Asked Questions
Q: What is the difference between DTAA and FTC?
A: DTAA: agreement between countries to avoid double taxation. FTC (Foreign Tax Credit): credit given in one country for tax paid in the other. DTAA provides the framework, FTC is the mechanism.
Q: When does GAAR apply?
A: GAAR applies to arrangements with tax benefit > ₹3 crore. If the arrangement is deemed to be for the main purpose of obtaining a tax benefit, GAAR can be invoked.
Q: What is the Equalisation Levy on digital services?
A: 6% on online advertisement + specified digital services provided by non-residents to Indian residents. 2% on e-commerce transactions (sale of goods / services via digital platforms by non-residents).