The India-Japan DTAA, originally signed 7 March 1989 and twice amended by Protocols (2006 and 2015, the latter in force since 29 October 2016), sets a uniform 10% withholding rate across dividends, interest, and royalties/fees for technical services.
A treaty amended twice since its 1989 signing
The original India-Japan Double Taxation Avoidance Agreement was signed on 7 March 1989 in New Delhi.
It was first amended by a Protocol signed 24 February 2006 in Tokyo, and further amended by a second
Protocol signed 11 December 2015 in New Delhi, which entered into force on 29 October 2016. The 2015
Protocol chiefly expanded the treaty's information-exchange provisions and added a mutual assistance
framework for revenue collection between the two countries, alongside refining the interest-income
exceptions for government and specified financial institutions. Throughout, the treaty applies a uniform
10% withholding rate across dividends, interest, and royalties/fees for technical services -- one of the
simpler, flatter rate structures among the treaties this platform covers.
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 Japan 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 Japan 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, with the payer typically responsible for deducting and depositing the tax. Where the
India-Japan DTAA's uniform 10% rate is lower than the domestic withholding rate for a specific income
category, an NRI can claim that relief by furnishing a Tax Residency Certificate issued by Japan's
National Tax Agency along with the prescribed Form 10F, consistent with how DTAA relief works for NRIs
based in any treaty country.
Common mistakes made in this area:
- Overlooking that the treaty has been amended twice (2006 and 2015) and relying on an outdated
understanding of its information-exchange and revenue-assistance provisions.
- Not obtaining a Tax Residency Certificate before claiming DTAA relief on Indian-source
income.
- Continuing to file as a Resident after becoming a genuine NRI, missing the lower NRI tax
treatment on foreign income.
