India-US Tax Treaty Tussle | 06 Dec 2025
A proposed shift in the US interpretation of the India-US Double Taxation Avoidance Agreement (DTAA) threatens to remove critical tax benefits for returning Indian professionals, retirees, and remote workers.
- Current Benefit: RNOR status allows such individuals to be taxed only on income accruing or received in India; foreign income (e.g. US salary, dividends, interest, capital gains) remains untaxed in India during the RNOR period.
- Eligibility for RNOR: Must satisfy criteria such as spending 120–182 days in India, or being an NRI in 9 of 10 previous years, or spending ≤729 days in 7 preceding years.
- Impending Change: The US, citing a new OECD Commentary, may no longer recognize RNORs as Indian "tax residents" for the treaty, as India does not tax their global income during this status.
- Impacts: This would strip RNORs of treaty benefits, leading to a jump in US withholding tax rates (e.g., dividends taxed at 30% vs. 15-25%, interest at 30% vs. 15%).
- It jeopardizes existing cross-border investment structures and necessitates urgent financial re-evaluation for affected individuals, despite no change in India's domestic tax law.
- Legal Weight: While the OECD Commentary is not binding, its persuasive authority is strong, especially as both India and the US engage with the OECD framework, making the shift a credible threat.
| Read More: Advance Pricing Agreements and Double Taxation Avoidance Agreement |