The India-Nepal DTAA, signed 27 November 2011 and in force since 16 March 2012, caps dividends at 5% or 10% and interest at 10%, and royalties at 15% -- but this platform flags that the treaty contains no separate Fees for Technical Services article or rate, and its MFN clause is narrow, confined only to royalties rather than covering dividends, interest, or FTS generally.
The India-Nepal DTAA -- confirmed rates, with a genuine structural gap this platform flags
An India-Nepal Double Taxation Avoidance Agreement was signed 27 November 2011 at Kathmandu
(replacing an earlier 1987 agreement), entered into force 16 March 2012, and became effective from 1
April 2013 in India and mid-July 2013 (Shrawan 1) in Nepal -- confirmed against the Income Tax
Department, India's own treaty page and cross-checked against a secondary tax-commentary source. Under
the treaty, dividends are capped at 5% where the beneficial owner is a company holding at least 10% of
the paying company's shares, or 10% in all other cases; interest is capped at 10%, with an exemption for
central banks and specified government entities; and royalties are capped at 15%. This platform flags a
genuine gap: the treaty contains no separate article or rate for Fees for Technical
Services -- FTS is not explicitly addressed and would fall under the royalties or
business-profits provisions depending on the specific facts, rather than having its own defined rate as
in many other India treaties. The treaty's MFN (most-favoured-nation) clause is also narrower than in
many other India treaties: it is confined to royalties in the Protocol -- if Nepal grants a lower
royalty rate or narrower scope to a third country, that better treatment automatically extends to India
under this treaty, but this MFN mechanism does not extend to dividends, interest, or FTS.
TDS under Section 195 on any Indian-property transaction, and getting a lower or nil TDS certificate
Section 194-IA's 1% TDS applies only to resident sellers. For a non-resident seller, the buyer must
instead deduct TDS under Section 195, generally on the full sale consideration at the capital-gains rate
unless a lower-deduction certificate has been obtained. An NRI seller in Nepal can apply to the
jurisdictional Assessing Officer, via Form 13 under Section 197, for a certificate authorizing TDS at a
lower or nil rate based on the actual computed gain -- worth evaluating with a chartered accountant
before the sale closes. Because the DTAA's FTS gap and narrow MFN clause could affect how certain
cross-border service payments are characterized, this platform recommends confirming the applicable
treaty provision directly with a chartered accountant for any transaction beyond a straightforward
property sale.
Repatriation of funds via FEMA, and the India-Nepal currency peg
Net proceeds from an Indian property sale are typically credited to the NRI's NRO account in India.
FEMA rules permit repatriation abroad of up to USD 1 million (or equivalent) per financial year,
cumulative across eligible remittances from that account, subject to the authorized dealer bank
receiving Form 15CA (and Form 15CB where applicable). Separately, readers moving funds between India and
Nepal specifically should be aware of a genuinely distinctive practical fact not shared by most other
countries this platform covers: the Nepali Rupee is pegged to the Indian Rupee at a fixed rate of 1 INR
= 1.6 NPR. This platform did not independently re-verify the current peg rate in this round of research
and recommends confirming the current rate before relying on it for a transaction.
Common mistakes in this process:
- Assuming the DTAA specifies a Fees for Technical Services rate the way many other India treaties
do -- this treaty does not, and the applicable provision needs to be worked out from the
royalties/business-profits articles based on the specific facts.
- Assuming the treaty's MFN clause covers dividends or interest -- it is confined to royalties
only.
- Not applying for the Section 197 lower-deduction certificate before a property sale closes.
