The India-Italy DTAA, signed 19 February 1993 and in force since 23 November 1995, sets dividend withholding at 15 percent for a qualifying 10-percent-plus shareholder company (25 percent otherwise), interest at 15 percent, and royalties and fees for technical services at 20 percent.
A treaty in force since 1995, unamended by any later Protocol
The India-Italy Double Taxation Avoidance Agreement (DTAA) was signed on 19 February 1993 and entered
into force on 23 November 1995, following the exchange of instruments of ratification; it was notified in
India via Notification No. GSR 189(E), dated 25 April 1996. No evidence of a subsequent amending Protocol
was found, so the original 1993 treaty text appears to remain in force as signed. Under the treaty,
dividend withholding is capped at 15% where the beneficial owner is a company holding at least 10% of the
paying company's shares, and 25% in all other cases; interest withholding is capped at 15%; and royalties
and fees for technical services are capped at 20% -- all higher than the flatter, lower rates this
platform has documented for several of India's more recently renegotiated treaties, so NRIs comparing
Italy against other destination countries should not assume parity.
NRI residential status -- the same rules regardless of country
Whether someone is treated as a Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR)
under Indian tax law depends on the standard day-count tests under the Income-tax Act, applied the same
way regardless of whether the person is based in Italy or any other country. Only income that is received
in India, accrues in India, or arises from an Indian source is generally taxable for a genuine
Non-Resident; foreign-sourced income earned and received in Italy is not taxable in India for a
non-resident.
TDS on Indian-source income and DTAA relief
Payments to a non-resident from an Indian source -- rent, interest, or capital gains on Indian assets,
for example -- are generally subject to withholding (TDS) under Section 195 of the Income-tax Act at the
applicable rate. Where the India-Italy DTAA provides a lower rate for a specific income category, an NRI
can claim that relief by furnishing a Tax Residency Certificate issued by the Italian tax authority
(Agenzia delle Entrate) along with the prescribed Form 10F.
Common mistakes made in this area:
- Assuming Italy's DTAA rates match the lower rates available under India's more recently
renegotiated treaties -- Italy's 1993 treaty carries comparatively higher caps on interest and
royalties/FTS.
- Not obtaining a Tax Residency Certificate from the Agenzia delle Entrate before claiming DTAA
relief on Indian-source income.
- Overlooking the beneficial-owner and 10%-shareholding condition for the lower 15% dividend
rate, and defaulting incorrectly to the 25% rate or vice versa.
