Section 159 — DTAA Framework | ITA 2025

Section 159 — - DOUBLE TAXATION AVOIDANCE AGREEMENT FRAMEWORK

Section 159 is the substantive equivalent of 1961 s. 90 -- the master DTAA framework. The provision authorises CG to enter into bilateral DTAAs with countries / specified territories or to adopt agreements between specified associations (e.g., professional bodies) for double-tax-relief, exchange of information, mutual assistance in collection, or anti-avoidance. India has 90+ DTAAs operational (UK, US, Singapore, Mauritius, UAE, Netherlands etc.). MASTER PRINCIPLE (sub-s. 2): provisions of DTAA prevail over Income-tax Act WHERE MORE BENEFICIAL to assessee -- the celebrated Azadi Bachao Andolan (SC 2003) ratio. GAAR override (sub-s. 2A equivalent post FA 2017) applies only where main purpose is tax benefit. TRC + Form 10F mandatory pre-conditions for treaty-claim.

Statutory text — Income-tax Act, 2025

Marginal note -- Agreement with foreign countries or specified territories and adoption by Central Government of agreement between specified associations for double taxation relief

(1) The Central Government may enter into an agreement with the Government of—

(a) any other country; or

(b) any specified territory, for the purposes mentioned in sub-section (3), and may, by notification, make such provisions as necessary for implementing the agreement.

(2) Any specified association in India may enter into an agreement with any specified association in the specified territory for the purposes mentioned in sub-section (3) and the Central Government may, by notification, make such provisions as may be necessary for adopting and implementing such agreement.

(3) The agreement mentioned in sub-section (1) or (2) may be entered for—

(a) the granting of relief in respect of—

(i) income on which income-tax under this Act and income-tax in that country or specified territory, as the case may be have been paid;

(ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment; or

(b) the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory);

(c) exchange of information for—

(i) the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be; or

(ii) investigation of cases of such evasion or avoidance; or

(d) recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be.

(4) Where,—

(a) the Central Government has entered into an agreement with the Government of any country or specified territory, as the case may be, under sub-section (1); or

(b) a specified association in India has entered into an agreement with a specified association of any specified territory under sub-section (2) and such agreement has been notified under that sub-section, for granting relief of tax, or avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

(5) The charge of tax,—

(a) in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable; or

(b) in respect of a company incorporated in the specified territory at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company or such company incorporated in the specified territory, as the case may be.

(6) Irrespective of anything contained in sub-section (4), the provisions of Chapter XI shall apply to the assessee, even if such provisions are not beneficial to him.

(7) Where, any—

(a) term used in an agreement entered into under sub-section (1) or (2), is defined under the said agreement, the said term shall have the same meaning as assigned to it in that agreement and where the term is not defined in that agreement, but defined in this Act, it shall have the same meaning as assigned to it in this Act and the explanation, if any, given to it by the Central Government; or

(b) term is used but not defined in this Act or in the agreement referred to in sub-section (1) or (2), it shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the said agree- ment, have the same meaning as assigned to it in the notification issued by the Central Government in this behalf, and the meaning assigned to such term shall be deemed to have effect from the date on which that agreement came into force; or

(c) term is used in any agreement entered into under sub-section (1) or (2), and not defined under the said agreement or this Act, or in any notifica- tion issued under clause (b), then, unless the context otherwise requires, it shall have the same meaning as assigned to it—

(i) in any Act of the Central Government related to taxes; and

(ii) in any other case, in any other law of the Central Government, and shall be deemed to have effect from the date on which the said agreement came into force.

(8) An assessee, not being a resident, shall be entitled to claim any relief under an agreement mentioned in sub-section (1) or (2), only when—

(a) a certificate of his being a resident in any country or specified territory, is obtained by him from the Government of that country or Government of that specified territory, as the case may be; and

(b) he provides such other documents and information, as may be prescribed.

(9) For the purposes of this section,—

(a) “specified associations” means any institution, association or body, whether incorporated or not—

(A) functioning under any law for the time being in force in India or the laws of the specified territory; and

(B) which may be notified as such by the Central Government for the purposes of this section;

(b) “specified territory” means any area outside India which may be noti- fied as such by the Central Government. Countries with which no agreement exists.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 159	INCOME-TAX ACT, 1961 -- s. 90
s. 159(1) -- CG power to enter DTAA with country / specified territory	1961 s. 90(1)
s. 159(1) clauses (a)-(d) -- relief / exchange / mutual assistance / avoidance	1961 s. 90(1)(a)-(d)
DTAA prevails over Act if more beneficial	1961 s. 90(2)
GAAR exception (FA 2017 / s. 96 of 2025 Act)	1961 s. 90(2A)
TRC requirement	1961 s. 90(4) [FA 2012] read with Rule 21AB
Form 10F additional declaration	1961 s. 90(5) [FA 2012] read with Rule 21AB(2A)

STATUTORY ARCHITECTURE

FOUR PURPOSES of DTAA per sub-s. (1): (a) GRANTING RELIEF -- credit for foreign tax paid (FTC); exemption (e.g., source-state-only); rate reduction (e.g., 10% WHT cap on royalty); (b) AVOIDANCE OF DOUBLE TAX -- jurisdictional rules (PE, residence tie-breaker, source rules); (c) EXCHANGE OF INFORMATION (EOI) and prevention of evasion -- Article 26 of typical DTAAs; (d) RECOVERY OF TAX assistance -- Article 27. MOST-BENEFICIAL RULE: where DTAA provisions more beneficial to assessee than Income-tax Act, DTAA applies. Codifies Azadi Bachao Andolan (SC 2003, 263 ITR 706) ratio. GAAR EXCEPTION (FA 2017): where MAIN PURPOSE of arrangement is tax benefit, Indian Act override DTAA via s. 96 / 178-184 GAAR (Chapter X-A in 1961). DTAA TYPES: (a) COMPREHENSIVE DTAAs (90+ countries -- US / UK / Singapore / Mauritius / UAE etc.); (b) LIMITED DTAAs (shipping / aircraft only -- with Iran / Saudi etc.); (c) TIEAs (Tax Information Exchange Agreements -- with Cayman / BVI / Bermuda etc., FATF / OECD-aligned).

DTAA OPERATIONAL ARCHITECTURE

TYPICAL DTAA STRUCTURE (OECD / UN Model Convention-based): Article 1: Persons covered. Article 2: Taxes covered. Article 3: General definitions. Article 4: RESIDENCE -- with TIE-BREAKER (permanent home, centre of vital interests, habitual abode, nationality, MAP). Article 5: PERMANENT ESTABLISHMENT (PE) -- fixed place / DAPE / construction PE / service PE. Article 7: BUSINESS PROFITS -- only PE-attributable taxable in source country. Article 10: DIVIDEND -- typical 10-15% WHT cap. Article 11: INTEREST -- typical 10-15% WHT cap. Article 12: ROYALTY / FTS -- typical 10-15% gross; 'made available' qualifier in newer treaties (UK / Singapore). Article 13: CAPITAL GAINS -- shares-of-Indian-co taxable in India under most amended treaties (post-2017 Mauritius / Singapore). Article 23/24: METHOD OF ELIMINATION -- exemption-with-progression (UK, NL); credit (US, India). Article 26: MUTUAL AGREEMENT PROCEDURE (MAP). Article 27: EXCHANGE OF INFORMATION. Article 28-29: ASSISTANCE in collection / anti-abuse (LOB / PPT post-MLI).

MULTILATERAL INSTRUMENT (MLI) AND BEPS

India is signatory to OECD MLI (effective 2019) overlaying 90+ DTAAs with: (i) PRINCIPAL PURPOSE TEST (PPT) -- treaty benefit denied if MAIN PURPOSE is tax benefit; analogous to GAAR. (ii) PERMANENT ESTABLISHMENT updates -- Action 7 commissionnaire / DAPE 'principal role' -- now in s. 9(9)(b)(i)(A). (iii) DUAL-RESIDENT-COMPANY RULES -- MAP-based residence determination. (iv) HYBRID MISMATCHES -- denial of treaty benefits for hybrid instruments. Practitioner: every DTAA invocation post-2019 must check MLI overlay; MLI Article 7 PPT applies even where domestic GAAR doesn't. India MLI ratifications staggered -- check counterparty country status at India tax authority MLI database.

TRC AND FORM 10F (PROCEDURAL CONDITIONS)

TRC (Tax Residency Certificate) -- mandatory pre-condition under sub-s. (4) FA 2012 amendment -- preserved in s. 159 framework. NR claiming DTAA benefit must obtain TRC from country of residence containing prescribed particulars (resident's name, status, period of residence, etc.). FORM 10F -- supplementary declaration where TRC lacks prescribed particulars (FA 2012 sub-s. 5 equivalent). Now electronically filed on Indian e-portal (CBDT Notification 2022). Practitioner: NR-payer must ensure TRC + Form 10F BEFORE any DTAA-rate WHT; without these, default Indian rate applies (1.5x typically) and DTAA benefit denied. PAN requirement also typically applies (s. 393); without PAN, 20% rate per s. 397 / 1961 s. 206AA.

KEY DTAAs IN INDIAN PRACTICE

(i) INDIA-MAURITIUS DTAA (1983, amended 2016) -- pre-2017 zero CG tax on Indian-co share-sale; post-2017 amendments tax CG at India source; transition period 2017-2019 with 50% rate; ATA 2023-24 protocol updates. (ii) INDIA-SINGAPORE DTAA (1994, amended 2017) -- similar to Mauritius; CG on shares post-Apr 2017. (iii) INDIA-USA DTAA (1989) -- comprehensive; royalty / FTS 15%; LOB clause demanding US-resident-company beneficial-ownership tests. (iv) INDIA-UK DTAA (1993) -- royalty / FTS 10%-15%; 'make available' qualifier. (v) INDIA-UAE DTAA (1992) -- residence-based; popular for personal-tax planning (UAE no personal income tax). (vi) INDIA-NETHERLANDS DTAA (1988) -- holding company treaty; participation exemption interactions. (vii) INDIA-CYPRUS DTAA (1994, amended 2016) -- post-2016 amendments removed source-state-zero. (viii) INDIA-CHINA DTAA (1994) -- royalty broader-scope; China-bound payments under closer scrutiny.

CASE LAW / KEY DECISIONS

(i) Union of India v. Azadi Bachao Andolan (SC 2003, 263 ITR 706) -- DTAA prevails over Act if more beneficial; foundational. (ii) Vodafone International Holdings BV v. UoI (SC 2012, 341 ITR 1) -- treaty-shopping under India-Mauritius DTAA; pre-FA 2012 reading. (iii) Engineering Analysis Centre of Excellence v. CIT (SC 2021, 432 ITR 471) -- treaty position prevails over s. 9(1)(vi) FA 2012 amendment for software royalty. (iv) GE India Technology Centre P Ltd v. CIT (SC 2010, 327 ITR 456) -- TDS only on chargeable-under-Act payments; DTAA exemption pathway. (v) Steria India v. CIT (Del HC) -- 'make available' qualifier under India-France DTAA; FTS scope. (vi) DIT v. Mphasis Ltd (SC 2018, 405 ITR 1) -- 'made available' test consolidated. (vii) Cyril Amarchand v. ACIT (ITAT Mumbai) -- TRC requirement; Form 10F supplementary. (viii) Sanofi Pasteur Holdings v. Department of Revenue (Andhra Pradesh HC 2013, 354 ITR 316) -- French parent transferring share of Singapore SPV holding Indian subsidiary -- treaty-residency; pre-MLI.

PLANNING NOTES

(i) MOST-BENEFICIAL ANALYSIS -- compute tax under both DTAA and Act; choose lower; document basis. (ii) TRC + FORM 10F -- mandatory; obtain BEFORE remittance; electronic Form 10F since 2022. (iii) MLI OVERLAY -- post-2019 DTAAs overlaid with PPT; high-risk arrangements may fail PPT even when DTAA literal text supports. (iv) GAAR ASSESSMENT -- for high-value (>INR 3 cr) cross-border transactions, GAAR assessment in addition to DTAA. (v) MAP / APA RECOURSE -- for treaty-residence-disputes / TP-disputes, MAP under Article 25 / 26 useful; Advance Pricing Agreement (APA) under s. 168-169 (1961 s. 92CC) for prospective TP certainty. (vi) WHT CALIBRATION -- review withholding rate under DTAA Article 10/11/12 vs domestic; obtain s. 393 lower-deduction certificate if needed; pair with Form 15CA / 15CB cross-border-remittance reporting.

CROSS-REFERENCES

Section 9 -- Income deemed to accrue or arise in India (DTAA limits source-charge).
Section 96 / 178-184 -- GAAR (override of DTAA in tax-avoidance scenarios).
Section 160 -- Unilateral foreign tax relief (no-DTAA cases).
Section 168-169 -- Advance Pricing Agreement (TP certainty).
Section 393 -- TDS on payments to non-residents.
Income-tax Rules, 2026 r. 21AB / 21AB(2A) -- TRC / Form 10F.
Form 10F -- supplementary declaration.
Form 15CA / 15CB -- cross-border remittance compliance.
OECD Model Tax Convention / UN Model -- treaty interpretation.
Multilateral Instrument (MLI) -- post-2019 BEPS overlay.
CBDT MLI database -- counterparty MLI status.

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