Landing U.S. clients or setting up a company abroad is exciting until you realize you’re being taxed in both countries. Painful right? That’s where the DTAA between India and USA steps in. It’s your tax shield, making sure you don’t pay twice on the same income while giving you cross-border profits. In this blog, we’ll break down what DTAA is, why it matters and how you can claim its benefits to save money and scale with confidence.
What DTAA Is
The Double Taxation Avoidance Agreement (DTAA) between India and USA is a US-India tax treaty that stops businesses from paying tax twice on the same income.
For Indian innovators expanding into the USA, this is crucial. The India DTAA with USA makes sure you pay tax fairly only once.
Why DTAA Exists
DTAA exists to solve one big problem: double taxation in India and USA. When income crosses borders, both countries often want to tax it. This can eat into profits and make global expansion less attractive.
The India–U.S. DTAA encourages entrepreneurship and global growth by keeping taxes fair and predictable.
One key provision often overlooked is Article 21(2) of the US India tax treaty, which deals with taxation of other income. For startups and freelancers, Article 21(2) provides clarity on income streams like consulting fees, online services or independent contracting.
Understanding DTAA
The DTAA between India and USA directly affects how entrepreneurs, NRIs and businesses handle cross-border income.
1. Types of Taxes Covered
- In the U.S.: The DTAA applies only to federal income tax under the Internal Revenue Code (IRC). It doesn’t cover other taxes like social security, excise on insurance premiums or company-specific taxes.
- In India: It applies to income tax, including surcharges, but excludes taxes like surtax.
2. Relief Mechanisms Under DTAA
DTAA prevents double taxation in India and USA using two methods:
- Exemption Method – If income is already taxed in the U.S., India may exempt it from tax.
- Tax Credit Method – If you’ve paid tax in the U.S., you can subtract that amount from the tax you owe in India.
3. Relief from Double Taxation
As per the US-India tax treaty, you either:
- Get an exemption (income excluded from Indian tax), or
- Claim a credit (deduct U.S. taxes already paid from your Indian tax bill).
Benefits of DTAA
The DTAA between India and USA makes cross-border business simpler and more profitable:
1. No Double Tax Burden – Pay tax once, not twice.
2. Better Cash Flow – More funds to reinvest and grow.
3. Investor Confidence – U.S. investors trust treaty-backed structures.
For Indian entrepreneurs, the US-India tax treaty is a money-saver and growth enabler.
Compliance Requirements for DTAA Benefits
DTAA benefits aren’t automatic, you need proper paperwork:
1. TRC – Certificate proving you’re an Indian tax resident.
2. Form 10F – Declaration filed with TRC.
3. PAN – Needed by foreign entities.
4. Proper Invoices and Contracts – Should mention DTAA provisions clearly.
Impact of DTAA on Company Registration
When registering a company, DTAA can influence whether you should set up in India, the U.S., or both. Here’s a simple comparison:
Indian company serving U.S. clients – Without DTAA, income is taxed twice. With DTAA, U.S. tax is credited to India.
U.S. company serving Indian clients – Without DTAA, double taxation applies in India and USA. With DTAA, lower withholding and credits apply.
Indian startup with U.S. subsidiary – Risk of being taxed as a U.S. Permanent Establishment (PE). DTAA defines PE rules, reducing surprise taxation.
Raising funds from U.S. investors – Without DTAA, dividends face high withholding tax. With DTAA, rates are reduced, making investments more attractive.
Conclusion
Don’t let double taxation in India and USA drain your profits. The DTAA between India and USA ensures you pay tax fairly, just once, making your global journey smoother.
And when it comes to company registration and compliance, Emanus has your back. We simplify this process with end-to-end support — from company registration to DTAA compliance — so you can focus on growing your business while we handle the complexities.
Ready to go global the smart way? Consult with Emanus today.
FAQs on DTAA Between India and USA
Q1. What is the DTAA between India and the USA?
It’s a tax treaty that prevents people and businesses from paying tax twice on the same income in both countries.
Q2. How to avoid double taxation in India?
Get a Tax Residency Certificate (TRC), give it to your U.S. client and claim a tax credit in India for tax already paid in the U.S.
Q3. Do I have to pay tax in the USA if I earn in India?
If you’re a U.S. citizen or company, yes—but you can claim credit for Indian taxes. If you’re only Indian-based, you usually pay tax only in India.
Q4. Who pays 30% tax in India?
High-income individuals and foreign companies on certain income (like royalties). DTAA may reduce this rate.
Q5. Does India have a tax treaty with the U.S.?
Yes, since 1989. It covers income like business profits, dividends, royalties, and interest.
Q6. How do I claim DTAA benefits?
Get a TRC, submit it with Form 10F to your U.S. payer, then claim tax credit in your Indian return.
Q7. Can Indian freelancers use DTAA?
Yes. Indian freelancers working with U.S. clients can use DTAA to reduce U.S. withholding tax and claim credit in India.
