Australia, Belgium, Canada, Denmark, France, Germany,
Indonesia, Japan, Korea, Mauritius, Singapore, the United
Kingdom and the United States. These treaties endeavor to
avoid double taxation and attract know- how and technology.
In many treaties the withholding tax on royalties and fees
for technical services emanating from India is lower than
the general tax rate. A careful planning and corporate
structuring can reduce the tax obligations considerably.
The following treaties have been
successfully used by international investors to
reduce their tax obligations in India and in their
The Indo-U.S. tax
treaty considerably reduces the withholding tax in
India for royalties, fees for technical services,
and for interest paid to the US banks and financial
institutions. The withholding tax on dividends
arising out of India is 15%, if the parent company
owns at least 10% of the voting stock. The
withholding tax on royalties and technical services
fees is at the rate of 15%. The capital gains is
taxed at a rate of 20%. The withholding tax on
rental of equipment and interest paid to U.S. banks
and financial institutions is at the rate of 10%.
All these rates are lower than the regular
withholding tax rates.
The withholding tax rates for dividends and capital
gains can be reduced further by a careful corporate
structuring and tax planning. The Indo-Mauritius tax
treaty offers reduced withholding taxes for
companies incorporated in the island country of
Mauritius. Recently some U.S. companies have
invested in India through offshore subsidiaries
incorporated in Mauritius. For companies
incorporated in Mauritius there is no withholding
tax on capital gains in India and the withholding
tax on dividends is only 5%. The companies
incorporated in Mauritius, at present, can opt not
to pay any tax in Mauritius.