Every other page in this set is about how much India takes. This one is mostly about what Australia was taking. For years Australian payers withheld on fees paid to Indian technology firms for work done entirely in India, treating them as deemed-source royalties. Australia changed its own law alongside the trade agreement to stop it — and a lot of affected businesses still do not know.
The treaty treats certain service payments as royalties with an Australian source even where the work is performed in India. Australian payers therefore withheld on fees to Indian technology firms that had no Australian presence at all, and the Indian firm often could not fully use the credit.
Australia amended its domestic law, in connection with the trade agreement, to exclude payments to Indian residents for remotely delivered technical services from Australian tax where there is no Australian permanent establishment. It applies to income years commencing on or after 29 December 2022.
Technical services are dealt with inside the royalty definition rather than in a separate article, and the definition reaches further than in most Indian treaties. Characterising a payment correctly matters, and the default assumption should not be that a service fee is outside it.
India and Australia have a totalisation agreement, so an employee posted between the two can stay in their home scheme on a certificate of coverage rather than contributing in both countries.
With Australian clients withholding on their invoices.
Paying Indian suppliers or running an Indian subsidiary.
With Indian property, rent or investments.
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💬 Get my quote →Dividends are capped at 15%, interest at 10%, and royalties at 15%. The feature to understand is structural rather than numerical: this treaty deals with technical services inside the royalty article rather than in a separate fees-for-technical-services article, and the royalty definition is drawn more broadly than in most Indian treaties. So the question is less often "what rate" and more often "is this a royalty at all".
Because of how the treaty's royalty article interacts with Australian source rules. Certain payments for services were treated as royalties with an Australian source even where the services were performed entirely in India by a company with no Australian presence — so Australian customers withheld Australian tax on them. For Indian technology and services exporters this was a long-running and material problem, and the foreign tax credit did not always relieve it fully.
Australia amended its own domestic law, in the context of the bilateral trade agreement, to exclude payments made to Indian residents for technical services delivered remotely from Australian taxation where the Indian firm has no permanent establishment in Australia. The change applies to income years commencing on or after 29 December 2022. It was a unilateral Australian fix rather than a treaty amendment, which is part of why it is less well known than it should be — if you are an Indian exporter who was being withheld on before that, it is worth checking what your Australian customers are doing now.
Three things. Whether your Australian customers are still withholding on remotely delivered services, because some are simply carrying on as before. Whether any of your work is performed in Australia, which changes the analysis and can create a permanent establishment there. And whether the services are genuinely remote in substance rather than just invoiced that way. Where withholding has been applied that should not have been, the route runs through the Australian side, so it needs to be raised with the customer rather than fixed on the Indian return.
On the ordinary grounds — a fixed place of business, a building site or installation project beyond the treaty period, or a dependent agent habitually concluding contracts — and there is also a services limb covering personnel present in India beyond a specified period. Because the royalty article already reaches many service payments, an Australian company will more often be caught by withholding than by a permanent establishment, but the two are separate exposures and a long India engagement can create both.
Yes. India and Australia have a totalisation agreement, so a posted employee can remain in their home scheme and be exempted in the host country with a certificate of coverage. For an Australian national on an Indian payroll this matters, because a foreign national is otherwise treated as an international worker and required to contribute to the Indian provident fund on full salary without the wage ceiling that applies to local staff.
Indian rent, interest, dividends and capital gains remain taxable in India as Indian-source income, usually with tax withheld at the non-resident rate, and the treaty caps the rate on certain categories. You file in India to recover any excess withheld, and Australia taxes the same income as part of your worldwide income with a credit for the Indian tax. On a property sale the withholding applies to the whole consideration rather than the gain, so a lower-deduction certificate before the sale is worth arranging.
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