India-US treaty: status and key articles
The India-US double taxation avoidance agreement (DTAA) is active and has been in force since 1989 with subsequent protocols. India and the US share comprehensive coverage on income tax, dividend withholding, royalties, and foreign tax credit mechanics.
- Article 7 (Business Profits): Indian-resident business profits are taxable only in India unless attributable to a US permanent establishment. Most non-resident SaaS, agency, services LLCs have no US PE.
- Article 10 (Dividends): US withholding drops from 30% to 15% on US-source dividends when W-8BEN-E is filed. 25% for non-qualifying intercorporate dividends.
- Article 11 (Interest): US withholding on portfolio interest typically reduced to 10-15%.
- Article 12 (Royalties): US withholding on royalties drops to 10-15% depending on type (industrial, copyright, know-how).
- Article 25 (Foreign Tax Credit): India provides FTC for US tax paid on the same income.
Withholding rates by income type for Indian residents
| Income type | Default US rate | India treaty rate |
|---|---|---|
| US-source dividends | 30% | 15% |
| US-source portfolio interest | 30% | 10-15% |
| US-source royalties (copyright) | 30% | 15% |
| US-source royalties (industrial, patents) | 30% | 15% |
| US-source rent (real estate) | 30% gross or net election | 30% gross or net election (not reduced) |
| Business profits without US PE | Generally not taxed (Article 7) | Generally not taxed (Article 7) |
| ECI from US trade or business | Graduated US rates | Not reduced by treaty |
| Services performed outside US | Not US-source | Not subject to US tax |
How India treats US LLC income
Indian tax authorities (CBDT) generally treat US LLCs as transparent (pass-through) for Indian tax purposes. LLC operating income flows through to your Indian return and is taxable in India under the head Business or Profession (Section 28 of the Income Tax Act, 1961) or as other source income depending on activity.
The treaty's foreign tax credit mechanism (Article 25) provides relief on any US tax actually paid. In practice, most Indian-resident LLC operating businesses pay no US tax, so the FTC is mainly relevant for US-source FDAP income that did get withholding.
How to file W-8BEN-E from India
- Line 1: Beneficial owner name (your LLC name as on Wyoming Articles)
- Line 2: Country of incorporation (United States)
- Line 4: Chapter 3 status: Disregarded Entity (most common for single-member LLCs)
- Line 5: Country of residence: India
- Line 6: Permanent residence address in India (your home address)
- Line 8: US TIN (your EIN as shown on CP575)
- Line 9: Foreign TIN (your Indian PAN)
- Part III: Claim of treaty benefits, cite Article 10 for dividends or Article 12 for royalties
- Submit to each US payer (Stripe, Amazon, AdSense, YouTube, Upwork, sponsors). Do not send to the IRS.
- Form expires after 3 calendar years. Renew before expiration.
Common mistakes by Indian founders
- Not filing W-8BEN-E with US payers (30% default applies until filed)
- Missing the annual Form 5472 + pro forma 1120 filing ($25K penalty per IRC Section 6038A)
- Forgetting Form 67 in India for claiming Foreign Tax Credit on US-paid tax
- Not declaring LLC ownership in Schedule FA (Foreign Assets) of Indian ITR
- Letting W-8BEN-E expire after 3 years (rate reverts to 30%)
- Confusing W-8BEN (individual) with W-8BEN-E (entity); the LLC uses W-8BEN-E
- Triggering ECI by maintaining US employees, US office, or US dependent agents