Section 159 of the Income-tax Act, 2025 — Double Taxation Relief: DTAA with Foreign Countries

In plain language

What Section 159 says in plain English

Section 159 of the Income-tax Act, 2025 is the single, consolidated provision that lets India sign and give effect to Double Taxation Avoidance Agreements (DTAAs) with other countries. It is the direct replacement for Sections 90, 90A and (in spirit) 91 of the old Income-tax Act, 1961. In simple terms, if you earn income that could be taxed both in India and in a foreign country, this section makes sure you are not taxed twice on the same income — you get relief through a tax treaty.

The section applies to income earned from 1 April 2026 onwards (FY 2026-27 / AY 2027-28). For income up to 31 March 2026, the old Sections 90/90A/91 of the 1961 Act still apply.

Who does it apply to

• Residents of India earning foreign income (e.g., salary, interest, dividends, capital gains, business profits abroad) who want credit for tax already paid overseas.
• Non-residents earning Indian-sourced income (interest, royalty, fees for technical services, dividends, capital gains) who want the lower treaty rate instead of the higher domestic rate.
• Specified associations — bodies in India that the Central Government notifies to enter into agreements with foreign associations (this covers arrangements like the earlier India–Taiwan tax arrangement).

The nine subsections at a glance

• 159(1): The Central Government may enter into a DTAA with any foreign country or specified territory, and notify it.
• 159(2): The Government may adopt an agreement made between a specified association in India and a specified association abroad.
• 159(3): A treaty can cover four purposes — granting relief from double taxation, avoiding double taxation without creating loopholes for non-taxation, exchange of information to prevent evasion/avoidance, and assistance in recovery of tax.
• 159(4): The "more beneficial" rule — where a treaty exists, the taxpayer gets whichever is more favourable: the treaty provisions or the domestic Act.
• 159(5): Charging a foreign company at a higher rate than a domestic company is not treated as discrimination under a treaty.
• 159(6): The General Anti-Avoidance Rules (GAAR) in Chapter XI apply even if they are less favourable to the taxpayer — GAAR overrides treaty benefits.
• 159(7): Order of definitions — treaty definition first, then the Act's definition, then any Central Government notification.
• 159(8): A non-resident claiming treaty relief must obtain a Tax Residency Certificate (TRC) from the foreign government and furnish prescribed information (now through Form 41, which replaces the old Form 10F).
• 159(9): Defines "specified association" and "specified territory".

Key conditions and documents

• TRC is mandatory for non-residents — no TRC, no treaty benefit. It must confirm residency for the relevant financial year.
• Form 41 (the successor to Form 10F) must be filed electronically on the income-tax portal, generally once per tax year, with the TRC uploaded. It cannot be filed offline and cannot be edited after the acknowledgment is generated.
• GAAR safeguard: even a valid treaty benefit can be denied if the arrangement is an impermissible avoidance arrangement (treaty shopping, no commercial substance).

How it interacts with other provisions

Section 159 works alongside the Foreign Tax Credit (FTC) mechanism (relief where there is no treaty, mirroring old Section 91), the withholding-tax (TDS) sections that determine the rate on payments to non-residents, and Chapter XI (GAAR). The Principal Purpose Test / Limitation of Benefits clauses inside individual treaties, plus the Multilateral Instrument (MLI), sit on top of Section 159 to stop treaty abuse.

Practical implications

For a resident Indian working abroad or an NRI investor, this section is what turns a 20% domestic withholding into, say, a 10% or 15% treaty rate — but only if the paperwork (TRC + Form 41 + PAN or the prescribed alternative) is in order. For payers in India (companies deducting TDS on foreign remittances), it means collecting the non-resident's TRC and Form 41 before applying the lower rate; otherwise they must deduct at the higher domestic/Section 206AA rate.