The India-Switzerland DTAA sets a standard 10 percent withholding rate on dividends, interest, and royalties/FTS, but a Swiss unilateral reduction to 5 percent on dividends -- reached via the treaty's MFN clause -- was suspended by Switzerland effective 1 January 2025, reverting the rate back to 10 percent, following the Indian Supreme Court's 2023 Nestle SA ruling.
A treaty rate that fell to 5 percent, then reverted to 10 percent
The India-Switzerland DTAA was signed on 2 November 1994 and entered into force on 29 December 1994,
setting standard withholding rates of 10% on dividends, 10% on interest, and 10% on royalties and fees
for technical services, later amended by a 2010 Protocol updating information-exchange standards. The
treaty's Most-Favoured-Nation (MFN) clause became the subject of a genuinely significant dispute: on 13
August 2021, Switzerland unilaterally reduced the dividend withholding rate for Indian tax residents from
10% to 5%, invoking the MFN clause with reference to India's later treaties with Lithuania and Colombia.
India's CBDT rejected this position in Circular No. 3 of 2022 (3 February 2022), holding that the MFN
clause is not self-executing and requires a formal notification under Section 90 of the Income-tax Act --
a position the Indian Supreme Court upheld on 19 October 2023 in Assessing Officer Circle (International
Taxation) v. Nestle SA. In response, Switzerland's Federal Department of Finance announced on 11 December
2024 that it was suspending its unilateral MFN application, reverting the dividend rate from 5% back to
the treaty's standard 10% effective 1 January 2025 -- while honouring the lower 5% rate for tax years
2018 through 2024 already accrued under the earlier position. NRIs with Swiss-source dividend income
should confirm which rate applies to their specific tax year before relying on either figure.
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 Switzerland 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 Switzerland 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-Switzerland DTAA provides a lower rate for a specific income category, an
NRI can claim that relief by furnishing a Tax Residency Certificate issued by the Swiss tax authorities
along with the prescribed Form 10F.
Common mistakes made in this area:
- Continuing to apply the 5% MFN-reduced dividend rate for tax year 2025 onward, after
Switzerland's suspension took effect 1 January 2025.
- Assuming the MFN suspension retroactively affects tax years 2018-2024, which Switzerland
confirmed remain governed by the earlier 5% rate.
- Not obtaining a Tax Residency Certificate before claiming DTAA relief on Indian-source
income.
