The India-Sweden DTAA, signed 24 June 1997 and amended by a 2013 Protocol, sets a flat 10 percent withholding rate on dividends, interest, royalties, and fees for technical services, and carries an MFN clause whose post-2023-Nestle-SA-ruling notification status for Sweden specifically has not been confirmed.
A flat 10 percent treaty, amended for information exchange in 2013
The India-Sweden Double Taxation Avoidance Agreement was signed on 24 June 1997, setting a flat 10%
withholding rate across dividends, interest, royalties, and fees for technical services -- with dividend
and interest income earned by the Government or specified institutions, including the RBI, generally
exempt from source-country taxation subject to conditions. A 2013 Amending Protocol, signed 7 February
2013, primarily upgraded the treaty's exchange-of-information provisions to OECD standards, enabling
India to obtain Swedish banking information and allowing tax officials of either country to conduct
examinations in the other's territory.
The treaty's MFN clause, and an unresolved question post-Nestle SA
The India-Sweden DTAA Protocol carries a Most-Favoured-Nation (MFN) clause that has been invoked in
Indian tax litigation -- in one documented ruling, the more favourable fees-for-technical-services
language of the India-Portugal DTAA was read into the India-Sweden treaty via the MFN clause. However,
the Indian Supreme Court's 19 October 2023 ruling in the Nestle SA case (concerning the India-Switzerland
DTAA) held that an MFN clause is not self-executing -- a specific Indian government notification under
Section 90 of the Income-tax Act is required before a taxpayer can invoke MFN benefits, even where a
lower rate already exists in a comparable third-country treaty. Whether India has issued or refused such
a notification specifically for the Sweden treaty could not be confirmed as of this writing, so NRIs
relying on an MFN-based reduced rate for Swedish-source income should confirm the current, applicable
position with a chartered accountant before filing.
NRI residential status and TDS on Indian-source income
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 Sweden or any other country. 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 DTAA
relief available on furnishing a Tax Residency Certificate issued by the Swedish tax authority
(Skatteverket) along with Form 10F.
Common mistakes made in this area:
- Applying an MFN-reduced rate for Swedish-source income without confirming whether the necessary
Section 90 notification exists for the Sweden treaty specifically, post-Nestle SA.
- Not obtaining a Tax Residency Certificate from Skatteverket before claiming DTAA relief on
Indian-source income.
- Assuming the flat 10% rate is negotiable case-by-case, when it is the treaty's standard rate
across all four covered income categories.
