Two countries can both have a legitimate claim on the same income, and both will make it. The treaty does not stop that — it decides who gets to tax what, and gives the other country’s tax back as a credit. Getting the credit requires filing in the right order, in both places.
Where a person is resident decides which country taxes their worldwide income; where income arises decides which country taxes it at source. When both apply to the same income, Article 25 of the India–US treaty provides relief — India gives a deduction for US tax paid on income the treaty allows the US to tax, and the US gives its citizens and residents a credit for Indian tax. In India the claim runs through the foreign tax credit mechanism and Form 67, which must be filed by the end of the relevant assessment year.
Income in both countries and not sure which return comes first? WhatsApp us your residency position for the year.
Quick Summary
| Question | Where it is answered |
| Resident of which country | Each country’s domestic law first; if both claim you, Article 4 tie-breaker |
| Tie-breaker sequence | Permanent home → centre of vital interests → habitual abode → nationality → mutual agreement |
| Relief from double taxation | Article 25 |
| Dividends | Article 10 — 15% where a company holds at least 10% of voting stock; 25% otherwise |
| Interest | Article 11 — 10% on bank and financial institution loans; 15% otherwise |
| Royalties | Article 12 — 15%; 10% for industrial, commercial or scientific equipment |
| Fees for included services | Article 12 — 15%, or 10% where ancillary to equipment use |
| India FTC claim | Form 67, by the end of the relevant assessment year |
💡 TaxKitab Tip Settle residence before you look at a single number. Indian residential status turns on days present, with the 182-day and 60-plus-365-day tests and the deemed-residence rules; US status turns on citizenship, green card, or the substantial presence test. Many people in their first or last year of a move are resident in both under domestic law — and that is exactly when the Article 4 tie-breaker matters and when the order of filing changes. Work out the status for the full year before anyone computes tax, because every later step depends on it.
Residence Decides Scope, Source Decides Rate
Two separate questions, often collapsed into one.
Residence determines whether a country taxes your worldwide income. India taxes a resident’s global income and a non-resident only on Indian-source income. The US taxes citizens and residents on worldwide income wherever they live — which is why a US citizen in India files in both countries.
Source determines whether the other country can tax a particular item at all, and at what rate. Treaty articles cap the source-country rate on dividends, interest and royalties. Where both countries tax the same income, relief is the third step, not a substitute for the first two.
When Both Countries Call You Resident
This happens more than people expect, particularly in a move year.
Indian residential status is a day-count test with additional conditions, and the RNOR category sits between resident and non-resident with a narrower scope of taxable foreign income — often the most valuable thing a returning NRI has in their first years back, covered in RNOR status for a returning NRI. US status follows citizenship, lawful permanent residence, or the substantial presence test.
When both apply, Article 4 breaks the tie in sequence: permanent home; if in both, centre of vital interests; then habitual abode; then nationality; then mutual agreement. It stops at the first limb that resolves it, which is why “I have a flat in both” is not the end of the analysis.
What the Treaty Caps
The rates below are maximum source-country rates under the treaty, not what you pay overall.
Dividends (Article 10) — 15% where the beneficial owner is a company holding at least 10% of the voting stock, 25% in other cases.
Interest (Article 11) — 10% on loans granted by banks and financial institutions, 15% otherwise. Certain government and central bank interest is exempt.
Royalties (Article 12) — 15% generally, 10% for industrial, commercial or scientific equipment.
Fees for included services (Article 12) — 15%, or 10% where ancillary to equipment use. This article most often decides whether a payment from an Indian company to a US consultant is taxable in India at all, and its scope is narrower than a general services article.
Claiming a treaty rate requires documentation: in India, typically a Tax Residency Certificate plus Form 10F; in the US, a W-8BEN for passive income or Form 8233 for personal services performed there.
Claiming the Credit in India
Relief in India runs through the domestic foreign tax credit mechanism read with the treaty, and the procedural step is Form 67, to be filed by the end of the relevant assessment year where the return is filed within the normal or belated window. Practically, file it before or with the return rather than relying on the outer date.
The evidence matters more than the date. The credit is for foreign tax actually paid, so you need proof of payment, a statement of the foreign income, and a computation mapping it to the Indian heads of income. A credit claimed on an estimate, or without payment proof, is the version that gets disallowed.
Under the Income-tax Act, 2025, effective from 1 April 2026, treaty relief now sits in Section 159, replacing Sections 90 and 90A of the 1961 Act. The treaty itself and its rates are unchanged. Whether the rule and form references for foreign tax credit have been renumbered alongside it is something to confirm before filing rather than assume.
The Common Situations
US citizen or green card holder living in India. Files in both — India on worldwide income as a resident, the US on worldwide income by citizenship, with relief flowing both ways depending on source.
Indian resident with US investment income. Dividends and interest taxed at source at treaty rates, credited in India through Form 67. Capital gains are a separate analysis and the treaty’s treatment is not uniform across asset types.
NRI in the US with Indian income. Rent, interest and gains from Indian property, taxed in India as Indian-source with a US credit. The property-sale TDS trap is in TDS on an NRI property sale under Section 195, and starting a business in India is a structure question first — an NRI setting up a business in India.
Indian consultant billing a US company. Usually no US tax where the services are performed in India, because the income is foreign-source — the mechanics are in 1099, W-2 or W-8BEN for India-based workers.
How We Work on This
We handle the India side — residential status computation, the Indian return, the foreign tax credit claim and Form 67, and the documentation behind it.
The US return and anything before the IRS sit with our US partner, an IRS Enrolled Agent, under a separate engagement with you. Enrolled Agents are licensed by the IRS itself rather than by a state, with full rights to represent taxpayers before it — which is the relevant credential when the two filings have to agree.
Frequently Asked Questions
Which return do I file first? Usually the source country’s, because the residence country’s credit is for tax actually paid. In practice both are prepared together and filed in whatever order the payment evidence allows — which is why one view of both sides saves a revision.
Can I claim a credit for tax I have not yet paid? No — the credit is for foreign tax paid, and claiming against an unpaid liability is where disallowances come from. Timing mismatches are a planning conversation before year end, not a filing choice after it.
Do I need a Tax Residency Certificate? For treaty benefits in India, generally yes, with Form 10F — for the correct period, since a certificate for the wrong year is a common and avoidable rejection.
I am RNOR. Does the treaty still matter? Yes, for Indian-source income taxed in the US and any foreign income still within the Indian net. RNOR narrows the scope; it does not remove the question.
What about capital gains? Treatment varies by asset type rather than running at a single rate, and this is where generic answers go wrong most often.
Does TaxKitab file US returns? No. We handle the India side. The US return is prepared and filed by our US partner under their own engagement with you.
References
- India–United States Double Taxation Avoidance Agreement — Article 4 (residence and tie-breaker), Article 10 (dividends), Article 11 (interest), Article 12 (royalties and fees for included services), Article 25 (relief from double taxation)
- Income-tax Act, 2025, Section 159 — treaty relief, replacing Sections 90 and 90A of the 1961 Act, effective 1 April 2026
- Rule 128 and Form 67 — foreign tax credit, with the filing window extended to the end of the relevant assessment year by Notification No. 100/2022
- Form 10F and Tax Residency Certificate requirements for treaty claims in India
⚠️ Residential status, treaty application and capital gains treatment are fact-specific and the 2025 Act has renumbered the relevant provisions. Nothing here is advice on your own position — confirm the current rule and form references on incometax.gov.in and take advice on both sides before filing.
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