The revised India-Kenya DTAA, signed 11 July 2016 and in force since 30 August 2017, cut withholding rates to a flat 10% across dividends, interest, royalties, and management/professional fees -- a significant reduction from the prior treaty's rates of up to 20%, giving NRIs in Kenya a materially better tax position than before.
A significantly modernized treaty since 2017
The revised India-Kenya Double Taxation Avoidance Agreement was signed on 11 July 2016 and entered
into force on 30 August 2017, becoming applicable from 1 January 2018. It replaced an older,
less favourable treaty with flat 10% withholding rates across the board: dividends at 10%, interest at
10% (down from 15% previously), royalties at 10% (down from 20% previously), and management or
professional fees at 10% (down from 17.5% previously). This makes the India-Kenya DTAA one of the more
materially improved treaties among the countries this platform covers, and NRIs in Kenya relying on an
older understanding of the treaty's rates should confirm the current, post-2017 position with a chartered
accountant.
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 Kenya 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 Kenya 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-Kenya DTAA provides a lower rate or different treatment for a specific income category, an NRI can
claim that relief by furnishing a Tax Residency Certificate from Kenya (issued by the Kenya Revenue
Authority) 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:
- Relying on the pre-2017 treaty's higher withholding rates rather than the current flat 10%
rates that have applied since the revised treaty took effect.
- 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.
