The India-Spain DTAA, in force since 12 January 1995, was significantly improved for NRIs by a 19 March 2024 Ministry of Finance notification that invoked the treaty's MFN clause to import the India-Germany DTAA rate, cutting withholding on royalties and fees for technical services from up to 20 percent down to a flat 10 percent, while dividends and interest remain at 15 percent.
The original 1993 treaty, and a significant 2024 rate cut for royalties and FTS
The India-Spain Double Taxation Avoidance Agreement was signed on 8 February 1993 and entered into
force on 12 January 1995. As originally signed, the treaty set withholding at 15% on dividends, 15% on
interest, a tiered 10% (for industrial, commercial, or scientific equipment) or 20% (for other royalties)
on royalties, and 20% on fees for technical services. A 2012 Amending Protocol added mutual-assistance
and limitation-of-benefits provisions. Most significantly for current NRI tax planning, the Ministry of
Finance's Notification No. 33/2024, dated 19 March 2024, invoked the treaty's Most-Favoured-Nation (MFN)
clause to import the lower India-Germany DTAA rate, reducing withholding on royalties and fees for
technical services from up to 20% down to a flat 10%, applicable from Assessment Year 2024-25 onward.
Dividends and interest were not affected by this notification and remain at their original 15% rates.
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 Spain 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 Spain 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-Spain DTAA provides a lower rate for a specific income category
(including the reduced 10% royalties/FTS rate following the 2024 MFN notification), an NRI can claim that
relief by furnishing a Tax Residency Certificate issued by the Spanish tax authorities (Agencia
Tributaria) along with the prescribed Form 10F.
Common mistakes made in this area:
- Continuing to apply the older, higher royalties/FTS rate after the 2024 MFN notification reduced
it to a flat 10%.
- Assuming the MFN reduction also applies to dividends or interest -- it does not; those remain
at 15%.
- Not obtaining a Tax Residency Certificate from the Agencia Tributaria before claiming DTAA relief
on Indian-source income.
