Welcome to Indian Market Access
Withholding Tax Structure
Foreign Portfolio Investors (FPIs) are subject to specific withholding tax provisions under the Indian Income-tax Act, 1961 (the ‘Act’) and Double Taxation Avoidance Agreements (DTAAs).
A. General Principles
• Withholding Tax Applicability
Where income is subject to withholding tax, it is generally deducted at the lower of the following rates:
- Rate prescribed under the Act (plus applicable surcharge and cess), or
- Rate specified under an applicable DTAA, subject to:
- Furnishing of Tax Residency Certificate (TRC),
- Submission of Form 10F online on the income tax e-filing portal
- Other prescribed declarations as required by the deductor in relation to legal and beneficial ownership.
B. Income-wise Withholding Tax Treatment
| Type of Income | Applicability of Withholding Tax (WHT) | Applicable WHT Rate under Act |
|---|---|---|
| Dividends | Applicable | 20% (plus surcharge and cess) |
| Interest Income on Debt Securities | Applicable | 20% (plus surcharge and cess) |
| Interest income on units of business trust | Applicable | 5% (plus surcharge and cess) |
| Capital Gains | Not Applicable | Not applicable |
| Interest on Income Tax Refund | Applicable | Non-corporates – 30% (plus surcharge and cess) |
Note: Taxes will be withheld at the lower of the rates prescribed under the Act or the applicable DTAA. However, DTAA rates will apply only if the FPI provides the necessary treaty documentation (such as the TRC and Form 10F) to the deductor.
*Practically on sovereign bonds, taxes are not withheld, and the taxpayer is obliged to pay tax as advance tax.