An NRI who rents out a flat near Kokapet, holds fixed deposits in Hyderabad or receives dividends from Indian companies will usually find that the payer deducts tax at source before the money reaches the foreign account. If a Double Taxation Avoidance Agreement (DTAA) between India and the country of residence taxes that income more lightly, the non-resident has to establish the claim with documents. This article explains what those documents are for tax year 2026-27, and how treaty relief interacts with domestic law and TDS (tax deducted at source).
Short answer
For tax year 2026-27 (1 April 2026 to 31 March 2027), a non-resident claiming treaty relief must hold a Tax Residency Certificate (TRC) from the government of the country of residence and furnish the other prescribed information, which Rule 75 of the Income-tax Rules, 2026 says is to be given in Form No. 41. Form 41 is described by the Income Tax Department as the erstwhile Form 10F. The treaty applies only where it is more beneficial than the domestic Act, and it does not by itself change how the payer must deduct tax.
Law and scope: which Act applies
The Income-tax Act, 2025 applies from 1 April 2026 and speaks in "tax years". Income of earlier periods, up to financial year 2025-26, continues to be governed by the Income-tax Act, 1961. The two regimes carry the same ideas in different numbering.
| Point | Income-tax Act, 1961 (up to FY 2025-26) | Income-tax Act, 2025 (tax year 2026-27 onwards) |
|---|---|---|
| Treaty-making and relief | Section 90 | Section 159 |
| Treaty vs Act: the more beneficial rule | Section 90(2) | Section 159(4) |
| Certificate of residence (TRC) as a condition | Section 90(4) | Section 159(8)(a) |
| Other prescribed documents | Section 90(5) with Rule 21AB and Form 10F | Section 159(8)(b) with Rule 75 and Form 41 |
| Anti-avoidance override | Section 90(2A), Chapter X-A | Section 159(6), Chapter XI |
| Withholding on payments to non-residents | Section 195 | Section 393(2), Sl. No. 17 |
| Lower or nil deduction certificate | Section 197 | Section 395 |
The section 159 and section 90 rows are taken from the Department's published texts of those sections; the sections 195/197 mapping to sections 393 and 395 should be read against the Act itself before reliance.
The "more beneficial" principle
Under section 90(2) of the 1961 Act, where India has a treaty with another country, the Act's provisions apply to a covered assessee only to the extent they are more beneficial. Section 159(4) of the 2025 Act carries the same principle. In practice the taxpayer is entitled to whichever is lower between the domestic computation and the treaty position, applied income by income. It is not a licence to pick favourable parts of each regime for one and the same item of income.
Two limits matter. First, the anti-avoidance provisions (Chapter X-A in the 1961 Act and, per the Department's page, Chapter XI in the 2025 Act) apply whether or not they help the assessee. Second, a treaty applies only if the person is a resident of the treaty partner within the treaty's own meaning, which is why the TRC is a condition and not a formality.
What a non-resident must give the payer
The statute makes the claim conditional. Section 159(8) permits relief to a non-resident only if the person obtains a certificate of being a resident in the relevant country or specified territory and furnishes other prescribed documents and information. In practice a payer (a bank, a company's registrar, a tenant who is a company, a buyer of property) will ask for the following.
- A TRC issued by the tax authority of the country of residence, valid for the relevant period. The Department's Form 41 FAQs state that it must be valid for the relevant Indian financial year.
- Form 41, filed electronically, with its acknowledgement.
- The Tax Identification Number (TIN) of the country of residence, which the Department lists among the requirements.
- The Indian PAN (Permanent Account Number), if the person has one. See the PAN section below.
- Any treaty-specific declarations the payer's own policy asks for, for example a statement that the person is the beneficial owner of the income. Whether such a statement is needed turns on the treaty text and the payer's policy, and it is not a requirement of Form 41 as described by the Department.
Form 10F is now Form 41
The Department's rules-and-forms note (March 2026) records Form 41 as the form formerly known as Form 10F, with Rule 75 of the 2026 Rules replacing Rule 21AB of the 1962 Rules. Rule 75 provides that the documents and information under section 159(8)(b) "shall be as per Form No. 41", that the assessee must keep documents supporting the information in the form, and that the tax authority may call for them to verify the claim. Rule 75 also deals with the other direction: a resident in India who needs a certificate of residence for a treaty applies to the Assessing Officer in Form 42, and the certificate is issued in Form 43.
Electronic filing
The Department's FAQs say Form 41 can be submitted only through the Income Tax e-Filing portal and that offline filing is not permitted. A non-resident without a PAN registers under the category for non-residents not holding PAN. The form is filed once for a tax year in which treaty benefit is claimed. Filing is a self-declaration under section 159(8) and does not require proof of tax payment.
What the form contains
The Department's portal note on filing describes three panels: Part A (particulars of the applicant), Part B (residential information) and the declaration and verification. The TRC is uploaded with the form and the foreign TIN is entered. Read the current form on the portal before filing because the field list can be revised.
PAN and verification
The FAQs state that PAN is not required: a non-resident can register without it and verify by one-time passwords sent to the registered mobile number and email. A person with a PAN logs in with it and verifies by an Electronic Verification Code (EVC) or Digital Signature Certificate (DSC), as applicable. A PAN remains relevant for other purposes, such as a return or a lower deduction certificate; see below.
How treaty relief meets TDS
TDS operates at the point of payment, while treaty relief is a question of how much tax is finally chargeable. For payments to non-residents the withholding provision is section 393(2) of the 2025 Act (section 195 of the 1961 Act). A payer that applies a treaty rate does so on the strength of the documents above; if the documents are absent, the Department's FAQs say TDS is deducted at the normal rate and the treaty benefit is not available at source. The non-resident may still be able to claim the benefit by filing a return and claiming a refund, subject to the return conditions. Domestic rates are collated in our TDS rates chart under the Income-tax Act, 2025.
By type of income
| Income | Why treaty relief arises | Points to read in the treaty |
|---|---|---|
| Interest on deposits or bonds | Treaties commonly cap source-country tax on interest | The interest article, the treaty definition of interest, any beneficial-owner condition |
| Dividends | Treaties commonly cap source-country tax on dividends, sometimes by shareholding level | The dividend article and any holding threshold |
| Rent | Depends on treaty; immovable property income is often dealt with in its own article | The immovable property article; do not assume a cap exists |
| Capital gains | Allocation depends on the type of asset and the treaty | The capital gains article and any holding or limitation conditions |
We have deliberately not stated treaty rates. They differ by treaty, by article and sometimes by protocol or later instrument, and must be taken from the treaty text for the country of residence on an official source.
The lower-deduction route
A treaty position and a lower deduction certificate are different tools. Section 395 of the 2025 Act lets a payee apply to the Assessing Officer for a certificate of lower or nil deduction, and the payer must then deduct tax at the certified rate for the validity period. The Department's page on section 395 also records that, for payments covered by section 393(2), Sl. No. 17, the Assessing Officer can determine the taxable portion of a sum on a payer's application. A certificate is useful where a payer would otherwise withhold on the whole sum even though only part is taxable, or where the payer is unsure which treaty rate to apply. The application form and procedure should be checked on the portal.
Worked example (illustrative)
Assumptions, for arithmetic only and not drawn from any treaty: an NRI receives interest of Rs 1,00,000 from an Indian bank; the domestic rate is taken as 20% and a treaty cap as 10%. Surcharge, cess and any other conditions are ignored.
| Position | Tax withheld | Net credited |
|---|---|---|
| No TRC or Form 41 with the bank; domestic rate applied | Rs 20,000 | Rs 80,000 |
| TRC and Form 41 in place; hypothetical 10% treaty cap applied | Rs 10,000 | Rs 90,000 |
The Rs 10,000 difference in the first row is not lost for ever, but recovering it would depend on a return and the refund process, which takes time.
Common mistakes
- Treating the 1961 Act's Form 10F as still current for tax year 2026-27. Filing is now in Form 41 under Rule 75.
- Submitting a TRC that does not cover the relevant period, or one that lacks the TIN.
- Assuming a treaty rate automatically applies once the person is an NRI. The person must be a resident of the treaty partner, and not every country has a treaty with India.
- Assuming the treaty must be applied in full: it applies only where more beneficial than the Act (section 159(4)).
- Filing Form 41 once and sending it to every payer without checking whether it is issued for the correct tax year.
- Ignoring anti-avoidance and other conditions in the treaty or in section 159(6).
- Mixing the roles: a Form 42/43 certificate is for residents of India seeking residence certificates, not for NRIs.
- Overlooking FEMA. Treaty relief does not substitute for FEMA compliance; see our note on FEMA foreign investment reporting.
Hyderabad context
In Kokapet and Gachibowli, many flats are held by non-resident owners and many fixed deposits sit with branches that service NRI accounts. In those situations the tenant, buyer or bank is the person who has to decide the rate of withholding, and an error shifts to the payer through TDS default consequences. That is why the payer's documentation checklist tends to be strict.
Frequently asked questions
Is Form 41 mandatory for an NRI claiming DTAA benefit?
The Department's FAQs state that it is mandatory for a non-resident to claim DTAA benefits, and that without a validly e-filed Form 41 with TRC the benefit is not available at source.
Can an NRI file Form 41 without a PAN?
Yes. The FAQs say PAN is not required and a registration category exists for non-residents not holding PAN, with OTP-based verification.
Does a TRC prove entitlement to treaty rates?
No. It evidences residence. Entitlement also depends on the type of income, the treaty's conditions and the domestic law position.
How often is Form 41 filed?
Once per tax year when treaty benefit is claimed, per the Department's note. Confirm with the payer whether it wants a fresh form each year.
Can the treaty give a worse result than the Act?
Under section 159(4), no. The Act applies to the extent more beneficial.
Does a lower deduction certificate replace Form 41?
Not necessarily. Section 395 is a separate application to the Assessing Officer. Whether a payer also asks for Form 41 should be confirmed with the payer.
Sources
- Section 159, Income-tax Act, 2025
- Section 90, Income-tax Act, 1961
- Rule 75, Income-tax Rules, 2026
- Form 41 FAQs
- Form 41 rules and forms note
- Section 395, Income-tax Act, 2025
Takeaway
Treaty relief for a non-resident has three moving parts: a TRC from the country of residence, Form 41 filed on the portal for the tax year, and the treaty text itself, applied only where more beneficial than the Act. Collect these before the payment date, not after the deduction.
Educational purpose only; this is general information and not professional advice. Laws and forms change, so verify against the current Act, Rules and portal.
Arpan Bohra & Co., Chartered Accountants – https://www.arpanbohra.co.in/ – ab@arpanbohra.co.in
This article is for general information and is not professional advice. Law and rates change; please consult us before you act.