India US tax treaty explained, how to avoid paying tax twice

Indian families with a foot in both countries often meet the same problem: India deducts tax on your Indian income, and the US wants tax on the same income too. The fix is the India–US tax treaty, a Convention for the Avoidance of Double Taxation (DTAA) signed in New Delhi on 12 September 1989 and in force since 1990.

The treaty doesn't make income tax-free. It decides which country gets to tax first, caps what India can deduct on some income, and makes the other country give credit. Here's how it works in practice.

Key points

• The treaty caps Indian tax on interest paid to a US resident at 15% (10% for bank lenders) and on dividends at 15% or 25%.
• Indian domestic rates can be lower than treaty rates; you pay whichever is lower.
• The US taxes its citizens and residents on worldwide income; the treaty's "savings clause" keeps that right, so US citizens get credits rather than exemptions.
• The US gives a foreign tax credit for Indian tax; India gives a credit to its residents for US tax.
• To use treaty rates in India you generally need a US tax residency certificate (Form 6166), the Indian self-declaration form and a PAN.

Who the treaty is for

The treaty applies to residents of India or the US, as each country defines it. Three groups use it most:

• Indians living in the US on an H-1B, L-1 or green card, who still earn interest, rent or dividends in India.
• Indian-origin US citizens with family property or deposits in India.
• People who've moved back to India and still have US income, such as rent, 401(k) payouts or Social Security.

If both countries treat you as a resident in the same year, which happens in a year you move, the treaty's tie-breaker in Article 4 decides. It looks first at where you have a permanent home, then where your personal and economic ties are closest, then where you usually live, then citizenship.

The rates that matter

Two things stand out. First, the treaty helps most with NRO interest, cutting Indian tax from about 31% (30% plus cess) to 15%. Second, for dividends the treaty cap of 25% is higher than India's own 20%, so you simply pay India's rate.

Why it matters: Indian Americans are among the highest-earning immigrant groups in the US, and many keep large deposits in India for parents, property or a future return. Without the treaty, NRO interest could lose about a third to Indian tax before US tax even starts. For readers in India, the same rules explain why relatives abroad send bank forms every April.

The savings clause: why US citizens still pay US tax

Article 1(3) contains what tax advisers call the savings clause. It lets the US tax its citizens, and both countries tax their residents, "as if the Convention had not come into effect". The clause even covers former US citizens for 10 years if they gave up citizenship mainly to avoid tax.

So a US citizen or green card holder living in the US is taxed by the US on all income, including Indian interest and rent. The treaty doesn't remove that tax. What it guarantees, in Article 25, is a credit: the US must allow Indian income tax as a credit against US tax on the same income.

Some articles are protected from the savings clause, including the rules on students (Article 21), visiting teachers and researchers (Article 22), government pensions and Social Security (Articles 19 and 20).

Worked example: NRO interest

Arjun lives in New Jersey on a green card. His NRO fixed deposit earns ₹1,00,000 of interest in a year, about $1,050 at ₹95 to the dollar.

• Without treaty paperwork, the bank deducts about 31.2%, or ₹31,200.
• With a US residency certificate and the Indian self-declaration, the bank can deduct 15%, or ₹15,000. If it deducted more, Arjun claims the difference back by filing an Indian return.
• In the US, Arjun reports the $1,050 as interest. Say his US rate on it is 22%, or about $231. He claims the Indian tax of ₹15,000 (about $158) as a foreign tax credit, so he pays about $73 more in the US.

Total tax: about $231, the same as if the interest were American. Without the treaty, Indian tax alone would have been about $328, more than his US tax, and the excess credit generally can't be used right away.

How to claim treaty rates in India

1. Get a US tax residency certificate. The IRS issues Form 6166 on request, using Form 8802. It certifies that you're a US resident for a given year.
2. File the Indian self-declaration on the income tax portal, known until 2026 as Form 10F, with details such as your US tax ID and address.
3. Give both to your Indian bank or payer, with your PAN.
4. File an Indian return if too much was deducted, to get a refund.

How to claim credit for tax paid

• In the US: use Form 1116 to claim credit for Indian income tax. Keep the Indian TDS certificates.
• In India: a resident who pays US tax on US income claims credit under Article 25 and Indian law. The Indian claim form, known until 2026 as Form 67, has to be filed by the return due date.

Credits work only up to the tax each country charges on that income, and only for income taxes. Indian GST or US state sales taxes don't count.

Things the treaty doesn't do

• No Social Security agreement. India and the US haven't signed a totalisation agreement, so workers on US payroll pay US Social Security even on a short posting. Our guide to moving back from the US explains what that means for benefits.
• No relief from reporting. FBAR and Form 8938 still apply; see our explainer on FBAR and FATCA for Indian accounts.
• No help with US state tax. Most US states don't follow federal treaties.

For how India decides your residency in the first place, see our NRI tax explainer. For which Indian account does what, see NRE, NRO and FCNR accounts.

The treaty is more than 35 years old and hasn't been rewritten since, which makes it one of the more stable pieces of the NRI tax picture. The rates in the table above have held for decades. What changes is your own residency, so check it each year before you rely on any rate.

Last checked: 26 Oct 2026. This explainer is general information, not tax advice. Consult a qualified tax professional in each country for your situation.