Double Taxation Avoidance Agreements: India’s Treaties and Mechanisms

Double Taxation Avoidance Agreements (DTAAs) are treaties that prevent the same income from being taxed twice by different countries. For India, they are important for allocating taxing rights, reducing tax uncertainty, and supporting cross-border trade and investment.

India’s DTAA framework also helps curb tax evasion and treaty abuse through residency proofs, anti-abuse clauses, and judicial checks. Recent statutory and treaty changes have further tightened compliance and clarified how treaty relief can be claimed.

Statutory Framework and Procedural Changes

• Income-tax Act, 2025: The Act replaced the Income-tax Act, 1961, with effect from April 1, 2026.
• Income-tax Rules, 2026: These were notified on March 20, 2026, alongside the new law.
• Consolidated relief provision: Bilateral and unilateral double taxation reliefs, earlier governed by Sections 90, 90A and 91, are consolidated under Section 159.
• Non-resident compliance: Under Section 159(8), non-resident taxpayers must electronically file Form 41 (replacing Form 10F) with a valid Tax Residency Certificate (TRC) to claim DTAA benefits.
• Resident application process: Indian residents seeking a TRC for foreign treaty benefits must apply through Form 42 to obtain Form 43, replacing the older Form 10FA and Form 10FB process.
• Standardisation of filings: The shift to Forms 41, 42 and 43 is meant to streamline international tax compliance and documentation.

Judicial Rulings on MFN and TRC

• TRC is not conclusive: In Authority for Advance Rulings (Income Tax) and Others v. Tiger Global International II Holdings (2026), the Supreme Court held that a Tax Residency Certificate does not prevent tax authorities from examining economic substance and possible misuse under GAAR.
• GAAR relevance: The ruling reinforced that treaty claims can still be tested against anti-avoidance provisions where facts indicate abuse.
• MFN clause needs notification: In AO Circle v. M/S Nestle SA (October 2023), the Supreme Court ruled that Most Favoured Nation (MFN) benefits in tax treaties are not automatic and need specific notification under Section 90(1), now mapped to Section 159.
• OECD membership timing: The Court also held that the third-country must have been an OECD member when it signed its DTAA with India; later membership is not enough.
• Swiss response: Switzerland suspended the MFN clause in its treaty with India after the Nestle SA judgment.

Key Bilateral Treaty Amendments

• India-France protocol: The Amending Protocol signed on February 23, 2026 removed the MFN clause from the Double Taxation Avoidance Convention and incorporated Base Erosion and Profit Shifting (BEPS) Multilateral Instrument provisions.
• Capital gains rule: The India-France protocol grants full taxing rights on capital gains from share sales to the company’s residence jurisdiction.
• India-Mauritius protocol: The Amending Protocol signed on March 7, 2024 entered into force on August 10, 2026 after ratification by Mauritius.
• Anti-abuse measures: The Mauritius protocol introduced the Principal Purpose Test (PPT) and revised the treaty preamble to curb treaty abuse and treaty shopping.
• Grandfathering: Under CBDT Circular No. 1/2025, the PPT applies prospectively, and capital gains on grandfathered shares acquired before April 1, 2017 remain outside PPT inquiry.
• India-Qatar DTAA: The revised treaty, signed in February 2025 and entered into force on September 10, 2025, became effective in India on April 1, 2026.
• Qatar treaty features: It introduced hybrid entity rules, a tie-breaker rule for non-individuals, and a 90-day threshold for a Service Permanent Establishment (PE).
• India-Spain DTAA: Notification No. 33/2024, issued on March 19, 2024, lowered withholding tax on royalties and Fees for Technical Services (FTS) to 10% from 20% by invoking the MFN clause linked to the India-Germany DTAA.
• India-Brazil DTAA: The protocol entered into force on October 18, 2025 and became effective in India on April 1, 2026, adding the Principal Purpose Test and modifying residency rules.
• India-Oman DTAA: The protocol incorporating the Principal Purpose Test and aligning the preamble with BEPS Action 6 became effective in India on April 1, 2026.

Key Prelims Takeaways

• DTAA purpose: To prevent the same income from being taxed twice and to allocate taxing rights between countries.
• Section 159: The Income-tax Act, 2025 consolidates bilateral and unilateral double taxation relief provisions here.
• Form 41: Non-residents must file this electronically with a valid TRC to claim DTAA benefits.
• Form 42 and Form 43: Indian residents use Form 42 to obtain Form 43 for foreign treaty claims.
• TRC and GAAR: A TRC is important but not conclusive; authorities may still test economic substance under GAAR.
• MFN clause: It is not automatic in India; specific notification is required for enforceability.
• BEPS Action 6: Its key anti-abuse tool is the Principal Purpose Test (PPT), now appearing in several Indian treaty updates.