Insights · Income-tax Act 2025
Form 10F Is Now Form 42: How Non-Residents Claim Tax Treaty Benefits in India
The documents that decide whether a treaty rate applies to a payment from India: the TRC, Form 42 (formerly Form 10F), PAN and the beneficial ownership and no-PE declarations.
A non-resident can only get a lower tax rate under India’s tax treaties if the Indian payer holds the right documents before the payment is made. The core document is a tax residency certificate from the non-resident’s home country. Where that certificate does not carry all the prescribed particulars, the non-resident must also furnish the information that used to be Form 10F and, from 1 April 2026, is Form 42 under the Income-tax Rules, 2026. Treaty relief itself now sits in section 159 of the Income-tax Act, 2025, which replaced section 90.
Key points
- Treaty relief: section 90 of the 1961 Act is section 159 of the 2025 Act
- A tax residency certificate (TRC) is mandatory to claim a treaty rate; it is necessary but not always sufficient
- Form 10F is now Form 42 and is furnished electronically on the income-tax e-filing portal
- The payer should also hold a PAN or the alternative particulars, and a declaration on beneficial ownership and permanent establishment
- India’s treaties also carry anti-abuse rules, such as the limitation of benefits article in the India-UAE treaty
Why the paperwork decides the rate
Withholding under section 393(2) runs at the rates in force under Indian law: 20% on royalties and fees for technical services, 35% on most business income of a foreign company, 20% on dividends, each plus surcharge and cess. A treaty rate can be lower, often 10% or 15%, and some treaties do not let India tax a category of income at all. The payer is entitled to apply the more beneficial treaty rate, but if the documents are missing when the tax is deducted, the tax department treats the payer as having under-deducted. The payer then pays the difference with interest and cannot recover it from a foreign party that has already been paid.
The documents a payer should hold
| Document | What it proves | Common problem |
|---|---|---|
| Tax residency certificate from the foreign tax authority | The payee is resident of the treaty country for the period | The certificate covers a calendar year that does not match the Indian tax year of payment |
| Form 42 (formerly Form 10F) | Particulars not in the TRC: status, nationality or place of incorporation, foreign tax identification number, period of residence, address | Not furnished before the payment, or furnished for the wrong year |
| PAN, or the particulars that stand in for it | Avoids the higher no-PAN rate under section 397(2) | Assuming a treaty rate works without either |
| Declaration of beneficial ownership | The payee is the real owner of the income, not a conduit | Holding companies with no substance |
| Declaration of no permanent establishment in India | Business profits are not taxable in India absent a PE | Staff or agents working in India for long periods |
Form 42: what it contains and how it is filed
Form 42 is the self-declaration a non-resident gives where the TRC does not already state the prescribed details. It asks for the non-resident’s status (individual, company, firm), nationality or country of incorporation, tax identification number in the country of residence, the period for which the residential status applies, and the address in that country. It is furnished electronically on the income-tax e-filing portal. A non-resident without a PAN can register on the portal for this purpose. The acknowledgement is what the payer should keep, together with the TRC.
File a fresh Form 42 for each Indian tax year in which payments are received. A form filed for tax year 2025-26 under the old number does not cover a payment made in, say, August 2026.
Getting the TRC right
Each country issues TRCs on its own terms. The UAE’s Federal Tax Authority issues them through EmaraTax, for individuals and companies, and for treaty purposes an individual generally needs to show 183 days of presence in the UAE. Our guide to the UAE tax residency certificate covers the process and fees. The United States issues Form 6166 through the IRS. Whatever the country, check three things before relying on a TRC: the name matches the contracting party exactly, the period covers the date of payment, and the certificate states residence for the purposes of the treaty with India, not simply registration.
Treaty rates are not automatic: anti-abuse rules
A valid TRC is evidence of residence, but the tax department can still deny treaty benefit where the arrangement fails the treaty’s anti-abuse provisions. The India-UAE treaty contains a limitation of benefits article, and India’s treaties that are covered by the multilateral instrument carry a principal purpose test. A holding company with no staff, no office and no decision-making in its country of residence is the usual target. Beneficial ownership is tested separately for dividends, interest and royalties. The rates under the India-UAE treaty are set out in our note on India-UAE DTAA withholding rates.
How it connects to Form 145 and Form 146
Where a remittance is chargeable to tax, the accountant’s certificate in Form 146 records the treaty relied on, the article, the rate and the documents seen. An accountant should not certify a treaty rate without the TRC and the Form 42 acknowledgement on file. The remitter’s declaration in Form 145 then carries the same position to the bank. See Form 145 and Form 146.
A payer’s checklist before the first payment
- Collect the TRC and check name, period and treaty wording.
- Ask the payee to furnish Form 42 on the portal for the current tax year and send the acknowledgement.
- Obtain the PAN, or the alternative particulars, to avoid the no-PAN rate.
- Obtain beneficial ownership and no-PE declarations where the income type needs them.
- Decide the characterisation (royalty, fees for technical services, business profits) and the treaty article, and record the reasoning.
- If the position is contested, consider a lower deduction certificate in Form 128 for protection.
- File Form 145 and obtain Form 146 before remitting.
Our international taxation team reviews treaty positions and documentation for Indian payers and for non-residents receiving Indian income. The renumbered provisions are listed in Income-tax Act 2025 section mapping.