On 24 October 2025, the Central Board of Direct Taxes issued Notification No. 154/2025 (Income Tax). This notification formalizes the Agreement and Protocol between India and Qatar for avoiding double taxation and preventing fiscal evasion on income taxes.
- Agreement signed on 18 February 2025
- Effective from 10 September 2025
- Applicable to income earned on or after 1 April 2026 in both countries
The agreement is notified under Section 90(1) of the Income-tax Act, 1961.
Significance of the Revised Agreement
The new agreement replaces the 1999 convention and aligns with international standards on Base Erosion and Profit Shifting (BEPS). It introduces anti-abuse provisions and updated rules for managing cross-border taxation.
Objectives:
- Remove double taxation on income
- Prevent treaty misuse and fiscal evasion
- Support trade and investment between India and Qatar
Overview of Key Provisions
Dividends
- Dividends paid by a company in one country to a resident of the other may be taxed in the source country.
- Rates:
- 5% if the recipient company holds at least 25% shares
- 10% in other cases
- Dividends paid to a government or local authority are taxable only in the recipient country, subject to ownership verification.
Interest
- Interest paid in one country to a resident of the other may be taxed in the source country at 10% of the gross amount if the recipient is the beneficial owner.
- Exemptions apply for interest earned by governments, local authorities, or central banks.
- Interest includes income from debt claims, including Islamic finance instruments, but excludes late payment penalties.
Royalties and Technical Service Fees
- Royalties and technical service fees paid to a resident of the other country may be taxed in the source country at 10% of the gross amount.
- Royalties include payments for intellectual property such as patents, trademarks, and copyrights.
- Technical service fees cover managerial, technical, or consultancy services.
- Excess payments beyond arm’s-length pricing may be taxed under domestic laws.
Capital Gains
- Gains from immovable property are taxed where the property is located.
- Gains from movable property linked to a permanent establishment are taxed in that state.
- Gains from ships or aircraft in international traffic are taxed only in the residence state.
- Gains from shares deriving over 50% value from immovable property are taxed in the situs state.
- Other gains are taxed in the seller’s residence state.
Profits from International Shipping and Air Transport
- Profits from operating ships or aircraft in international traffic are taxed only in the residence state.
- Includes profits from containers used in international traffic.
- Interest on funds related to these operations is treated as operational profit and exempt from interest tax rules.
Associated Enterprises and Permanent Establishment
- Associated enterprises must follow arm’s-length pricing. Non-compliance can lead to profit adjustments.
- Permanent establishment includes:
- Fixed places of business
- Construction projects lasting over six months
- Service projects exceeding 90 days in 12 months
- Anti-fragmentation rules apply to related enterprises with more than 50% control.
Mechanism for Eliminating Double Taxation
Both countries use the credit method:
- Qatar: Deduction for Indian tax paid, limited to income taxed in India
- India: Deduction for Qatari tax paid, limited similarly
- Indian residents must comply with Rule 128 of Income-tax Rules, 1962, including:
- Filing Form 67 before the return due date
- Keeping proof of foreign tax payment
Anti-Abuse Measures
- Principal Purpose Test (PPT): Benefits denied if the main purpose of a transaction is to obtain treaty benefits, unless consistent with the agreement’s purpose.
- No separate Limitation of Benefits clause; PPT addresses treaty shopping.
- India’s GAAR provisions under Chapter X-A also apply to abusive arrangements.
Compliance Checklist
To claim benefits under the India-Qatar DTAA, ensure:
- Obtain Tax Residency Certificate from Qatari authorities for residents (Section 90(4)).
- Collect Form 10F and PAN from non-residents unless exempt.
- File Form 67 for foreign tax credit before the return due date with proof of tax payment.
- Verify genuine economic substance and commercial rationale for transactions to meet PPT requirements.
- Review arrangements under GAAR and PPT for potential abuse.
- Apply reduced withholding tax rates:
- 10% for interest, royalties, and technical service fees
- 5% or 10% for dividends based on shareholding
- Maintain records for transactions reportable under Section 285BA and comply with PMLA for information exchange.
- Document arm’s-length pricing for associated enterprises under Section 92D.
Practical Takeaways
- The provisions apply to income earned from 1 April 2026.
- Ensure that all arrangements have genuine economic substance to meet the Principal Purpose Test and avoid treaty misuse.
- Comply with the Foreign Exchange Management Act (FEMA) for all cross-border remittances.
- Use the Mutual Agreement Procedure (MAP) to resolve disputes between the two countries.
- Assess exposure to permanent establishment, including service duration thresholds and anti-fragmentation rules, to prevent unintended taxation.
Disclaimer
This article provides general guidance and does not constitute professional advice. For complete details, refer to Notification No. 154/2025-Income Tax. For dispute resolution, approach the competent authority under the Mutual Agreement Procedure.