The India-USA Tax Treaty: Which Article Governs Your Income

A treaty allocates; it does not charge

The convention between India and the United States was signed at New Delhi on 12 September 1989 and entered into force on 18 December 1990. India gave it effect by notification GSR 990(E) of 20 December 1990. There has been no amending protocol since, and because the United States has never signed the multilateral instrument — which India signed on 7 June 2017 and which entered into force for India on 1 October 2019 — the text you read today is the text that was negotiated.

That stability makes the treaty easy to reason about, provided you start from the right premise. A treaty never creates a liability. Domestic law charges the tax; the treaty decides which country may charge it, caps the rate in some cases, and obliges the other to give credit. Indian practice makes this explicit: a non-resident may apply either the provisions of the Act or the relevant agreement, whichever is more beneficial. Reading the treaty in isolation tells you nothing about what you owe.

Which article covers which income

The India-USA convention does not follow the OECD numbering that most cross-border material assumes. Article 14 is a branch-profits charge, which pushes the personal services articles down by one. Citing the wrong number is a reliable way to reach the wrong answer.

Two of these ceilings are worth pausing on. India's domestic rate on dividends paid to non-residents sits below the treaty's 25% ceiling for individual shareholders, so Article 10 usually adds nothing for a US-resident holder of Indian shares. Article 11 works the other way: the 15% ceiling on interest is materially below what India's domestic withholding regime would otherwise take from ordinary rupee deposit interest, so it is worth claiming. The article that helps and the article that does not are decided by comparison with domestic law, never by the treaty alone.

Note also that Article 24, the limitation-on-benefits provision, applies to persons other than individuals. Individual claimants are not screened by it.

The tie-breaker when both countries call you resident

Article 4(1) treats you as a resident of a Contracting State if that State taxes you by reason of domicile, residence, citizenship, place of management, place of incorporation or a similar criterion. Citizenship is on that list, which is why an American citizen is a US treaty resident wherever they live.

Where both countries qualify, Article 4(2) applies a cascade to individuals, and you stop at the first limb that yields one answer:

1. The State in which you have a permanent home available to you.
2. If a home is available in both, the State with which your personal and economic relations are closer — the centre of vital interests.
3. If that cannot be determined, or no permanent home is available in either, the State of your habitual abode.
4. If that too is inconclusive, the State of your nationality.
5. Failing all of these, the competent authorities settle it by mutual agreement.

The Indian side of this analysis starts from your day counts, which our India residential status test works through, and interacts with the transitional shelter described in RNOR planning for returning NRIs.

There is a serious immigration-adjacent trap here. A US lawful permanent resident who claims treaty residence in India, does not waive the treaty benefit, and notifies the IRS on the prescribed forms is treated under IRC section 7701(b)(6) as ceasing to be a lawful permanent resident. For a long-term resident, that can bring the expatriation regime in IRC section 877A into play. The dual-resident disclosure itself is made on Form 8833 under Regulations section 301.7701(b)-7. Taking a tie-breaker position is therefore never purely a tax decision.

The saving clause removes most of the treaty for Americans

Article 1(3) permits each Contracting State to tax its residents, and by reason of citizenship its citizens, as if the convention had not come into effect. Article 1(4) preserves a short list: Article 9(2) on correlative adjustments, Article 20(2) and 20(6) on social security and child support, Article 25 on relief from double taxation, Article 26 on non-discrimination and Article 27 on mutual agreement. A second list preserves the host-country exemptions in Articles 19, 21, 22 and 29, but only for individuals who are neither citizens of nor immigrants in that State.

The consequence is blunt. If you hold a US passport or a green card, the distributive articles that would otherwise assign an income type exclusively to India generally do not bind the United States. What you retain is the credit mechanism, not the exemption.

US retirement accounts and Social Security

Article 20(1) provides that a private pension or annuity derived by a resident of one State from sources in the other is taxable only in the State of residence. On its face, that assigns a US pension paid to an Indian resident to India alone — but Article 20(1) is not protected from the saving clause, so a US citizen or green card holder cannot use it against the IRS.

The definition matters as much as the rule. Article 20(3) defines a pension as a periodic payment made in consideration of past services or as compensation for injuries received in performing them. The official technical explanation to the convention is explicit that a single lump-sum payment does not qualify, and that it falls instead under Article 23 as other income. Article 23(1) assigns other income to the residence State, but Article 23(3) allows the State in which it arises to tax it as well. A lump-sum 401(k) distribution and a stream of annuitised payments can therefore land in different articles with different outcomes.

Article 20(2) is the clean one. Social security benefits and other public pensions paid by a Contracting State to a resident of the other are taxable only in the paying State, and this paragraph survives the saving clause.

India separately addresses the timing mismatch that arises because a 401(k) or IRA is taxed in the United States on withdrawal but could otherwise be taxed in India on accrual. Section 158 of the Income-tax Act 2025 — successor to section 89A of the 1961 Act — lets a resident who opened a qualifying account while non-resident and resident in a notified country elect to be taxed in the year the notified country taxes the withdrawal. The United States, the United Kingdom and Canada are the notified countries. The election is made on the prescribed form (Form 40 under the Income-tax Rules 2026) before filing, and once exercised it binds subsequent years.

Capital gains: the article that hands the question back

Article 13 is one sentence long and it gives nothing away. Except for gains within Article 8 on ships, aircraft and containers, each Contracting State may tax capital gains under its own domestic law. There is no source restriction, no rate ceiling and no carve-out.

For an NRI selling Indian property or Indian shares, the treaty therefore offers no shelter from the Indian charge, and the whole benefit arrives downstream through the credit in Article 25. That is why property-sale planning for US-connected clients has to be built on Indian domestic rules first.

Foreign tax credit mechanics on both sides

Article 25 uses the credit method in both directions, but the two limbs are not symmetrical.

The United States allows a credit under Article 25(1) for Indian income tax, in accordance with and subject to the limitations of US law as amended from time to time — in practice the ordinary limitation in IRC section 904, computed by category and claimed on Form 1116. The treaty preserves the principle of a credit; it does not override the domestic ceiling.

India allows a deduction under Article 25(2) equal to the US income tax paid, whether by assessment or by withholding, capped at the part of the Indian tax attributable to the income the United States was entitled to tax. Where no agreement applies at all, section 160 of the Income-tax Act 2025 provides unilateral relief.

Article 25(3) then re-determines source for credit purposes: income the other State may tax under the convention is deemed to arise there, and income it may not tax is deemed to arise at home. Two qualifications matter. Statutory source rules used for limiting the foreign tax credit take precedence over that general rule, and that precedence does not extend to Article 12 income, whose source follows the treaty rule.

On the Indian procedural side, the statement of foreign income and foreign tax credit is now Form 44 under rule 76 of the Income-tax Rules 2026, replacing Form 67. It is filed electronically, must be furnished within twelve months from the end of the relevant tax year in which the foreign income was offered to tax in India, and requires verification by an accountant where the taxpayer is a company or where foreign tax paid for the year is INR 1 lakh or more.

The residency certificate and the form beside it

Section 159(8) of the Income-tax Act 2025 makes treaty benefit conditional on two things together: a certificate of residence obtained from the government of the country of residence, and the prescribed information. A certificate alone is not enough.

That information is now given in Form 41, under rule 75(1) of the Income-tax Rules 2026, replacing Form 10F, which sat under rule 21AB and sections 90(5) and 90A(5) of the 1961 Act. It is filed electronically on the Indian e-filing portal, asks for status, nationality, residential address and the tax identification number in the residence country, and can be filed without a PAN where the taxpayer is not required to hold one.

Running the other way, an Indian resident who needs to prove Indian residence to a US payer applies on Form 42 under rule 75(3) and receives the certificate on Form 43. A US resident seeking the same proof for India requests Form 6166 from the IRS by filing Form 8802. Our guide to DTAA relief and the Tax Residency Certificate covers the documentation trail, and the account designation questions beside it are in NRE, NRO and FCNR accounts.

Compliance caveat

This guide describes the allocation rules of the 1989 India-USA convention and the Indian procedural framework under the Income-tax Act 2025 and the Income-tax Rules 2026 in general terms. It does not address state-level US taxation, the treatment of trusts and partnerships under Article 4(1)(b), the limitation-on-benefits screen for entities, information reporting for foreign accounts and assets on either side, FEMA residence — which is decided separately and can differ from your income-tax status — or estate and gift taxes, which this convention does not cover. Rates, thresholds, section numbers and form numbers change with each Finance Act and each set of rules, and are stated here as at the date shown. This is a simplified guide, not tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Confirm your position with qualified advisers in both jurisdictions before filing or acting on anything here.

How Global Investments can help

Treaty questions go wrong at the seams rather than in the middle. The article is identified correctly, the rate is quoted correctly, and then the saving clause, the source re-determination rule or a missing residency certificate changes the outcome entirely. Our advisers work with clients holding assets and income on both sides of the India-USA relationship to map each income stream to the article that actually governs it, to test a dual-residence position against the Article 4(2) cascade before it is asserted rather than after, and to coordinate the Indian and US filing trails so that a credit claimed on one return is supportable on the other. Where a US retirement account, an Indian property disposal or a green card is in the picture, we look at the immigration and timing consequences alongside the tax position rather than in isolation.