The DTAA between India and the U.S. does not exempt an Indian investor from tax on U.S. property income. It limits how much the U.S. can withhold on some kinds of income and requires India to give credit for that tax, while other parts of the bill stay where each country's own law puts them. The question carries more weight this year because, under a Central Board of Direct Taxes order dated 8 July 2026, information India receives from other countries through automatic exchange can be uploaded into a taxpayer's Annual Information Statement (AIS), according to KPMG's summary of the order.
For an Indian resident who holds U.S. real estate through a U.S. corporation, three articles of the 1989 treaty do most of the work. Article 10 caps the U.S. tax on dividends, Article 25 makes India allow a credit, and Article 13 leaves gains on sale to each country's own law. Read together, they explain most of what an investor sees on Form 1042-S and in the Indian return, and the U.S. real estate tax guide for Indian investors follows the same structure through every stage of an investment.
What the DTAA Between India and the U.S. Actually Does
The India-U.S. Double Taxation Avoidance Agreement was signed in New Delhi on 12 September 1989, according to the treaty text published by the IRS. It covers income taxes only. On the Indian side that means income tax, including surcharge, and on the U.S. side it means federal income taxes. Estate and gift taxes are outside it, a point that matters later for families.
A treaty does not create a tax. It divides the right to tax between two countries and limits what the source country, where the income arises, may take. Article 1 also keeps each country's right to tax its own residents as if the treaty did not exist, which is why an Indian resident still reports worldwide income in India. Under section 159 of the Income-tax Act, 2025, the treaty has legal force in India, and a taxpayer may rely on the Act or the treaty, whichever is more beneficial.
How the Treaty Applies to U.S. Real Estate Held Through a Blocker
Indian investors in private U.S. real estate offerings on Raveum invest through a U.S. corporation, often called a blocker, which holds the interest in the entity that owns the property. The blocker pays U.S. corporate tax on its share of the property's income. What reaches the investor is therefore a dividend from a U.S. company, not rent from a building.
This distinction decides which article applies. Article 6 lets the country where real property sits tax the income from that property, but the investor does not receive that income directly. The investor receives dividends while the property operates, and a distribution or a gain on shares when it is sold. Each of these falls under a different part of the treaty.
Dividends and the 25% Treaty Rate
Under U.S. law, dividends paid to a foreign person face withholding of 30% of the gross amount. Article 10 of the treaty reduces this to 25% for an Indian resident individual. The lower 15% rate applies only to a company that owns at least 10% of the voting stock of the company paying the dividend, so it is not available to individuals investing through a blocker.
The treaty rate is not automatic. The U.S. withholding agent applies it on the basis of Form W-8BEN, on which the investor certifies that they are the beneficial owner of the income and a resident of India. The tax withheld is then reported to the investor on Form 1042-S. How each payment travels from the U.S. company to an Indian bank account is explained in how U.S. dividend tax in India applies to property distributions.
The treaty treats listed U.S. real estate investment trusts differently. A REIT dividend cannot use the 15% rate at all, and the 25% rate applies only when the dividend is owned by an individual. The comparison shows that the treaty looks at the legal form of the payer, not at the fact that real estate sits underneath.
How India Gives Credit Under Article 25
India taxes its residents on the gross dividend at the investor's applicable rates. Article 25 then requires India to allow a deduction from Indian tax equal to the U.S. tax paid, capped at the Indian tax attributable to that income. If the U.S. withheld more than the Indian tax on the same dividend, India does not refund the difference.
The procedure has moved to new forms. For income from tax year 2026-27, Rule 76 of the Income-tax Rules, 2026 requires the claim on Form 44, while credit for income earned up to 31 March 2026 is still claimed on the old Form 67. Form 44 must be furnished within twelve months from the end of the relevant tax year, together with a statement of the tax deducted and proof of payment. It needs an accountant's verification when foreign tax paid in the year is ₹1 lakh or more, and the split between the two forms is set out in how Form 67 gives way to Form 44.
The AIS order gives investors another reason to keep these records in order. Where foreign information appears in the AIS, the Income Tax Department can compare it with the income declared in the return and with the foreign assets reported in Schedule FA. Keeping Form 1042-S, each distribution statement and the bank credit advice together makes that comparison easier.
What the Treaty Leaves to Domestic Law
Article 13 states that each country may tax capital gains under its own domestic law. The treaty therefore gives no reduced rate on gains, and the U.S. keeps its right to tax gains from U.S. real property under FIRPTA, the Foreign Investment in Real Property Tax Act. In a blocker structure, the corporation pays U.S. tax on its gain when the property is sold, before cash moves to investors. India then taxes what the investor receives under its own capital gains rules.
Estate tax is the larger gap. Because the treaty covers income taxes only, it offers no relief from U.S. estate tax. The IRS treats stock of U.S. corporations as a U.S.-situated asset, and an estate return on Form 706-NA is required where a nonresident's U.S. assets exceed US$60,000 at death. Families planning succession can read how U.S. estate tax applies to global investors before deciding how holdings are owned.
Risks and Limits of Relying on the Treaty
The treaty reduces one layer of tax, but it changes nothing about the investment itself. A private real estate investment can lose capital and usually cannot be sold before the property exits. Distributions may stop if tenants leave, property values fall or debt becomes more expensive to refinance. Currency movements also change the rupee value of every dollar received, in either direction.
The treaty has limits of its own. The Indian credit is capped at Indian tax on the same income, a late or missing Form 44 can cost the credit, and the 25% rate depends on a valid W-8BEN being on file. Treaty terms and Indian rules can change, and the outcome depends on each investor's residence and circumstances.
For these reasons, the reading should be confirmed with a chartered accountant before money is sent abroad under the Liberalised Remittance Scheme. The bank that processes the remittance reviews each transfer, but it does not advise on how the income will be taxed later.
A Treaty That Shares the Bill Rather Than Removing It
Read as a whole, the DTAA between India and the U.S. works as an allocation rule. The U.S. taxes the property's profits at the corporate level and withholds on dividends at the treaty rate. India taxes the same dividends and credits the U.S. tax up to its own, while gains and estates fall back on each country's domestic law.
The useful checks for an investor are therefore practical ones. They include a valid W-8BEN on file, a Form 1042-S that matches the money received, a Form 44 filed on time and a plan for U.S. estate tax. The U.S. real estate tax guide for Indian investors sets out how each of these works over the life of an investment. Eligible investors can review how investing in U.S. real estate from India works on Raveum, including the property, sponsor, ownership structure, fees, risks and offering documents for each opportunity.
Frequently asked questions
What Is the DTAA Between India and the U.S.?
It is the income tax treaty India and the U.S. signed on 12 September 1989. It decides which country may tax each type of income, limits withholding on items such as dividends and interest, and requires India to give credit for U.S. tax paid. It covers income taxes only, not estate or gift taxes.
What Is the Dividend Tax Rate for Indian Residents Under the Treaty?
For an Indian resident individual, the U.S. may withhold up to 25% of the gross dividend, instead of the usual 30%. The 15% rate applies only to a company owning at least 10% of the voting stock. You need a valid Form W-8BEN on file for the treaty rate to apply.
How Do I Claim Credit in India for U.S. Tax Withheld?
For income from tax year 2026-27, you furnish Form 44 under Rule 76 of the Income-tax Rules, 2026, with a statement of the U.S. tax deducted and proof of payment. Income earned up to 31 March 2026 still uses Form 67. The credit cannot exceed Indian tax on the same income, so excess U.S. tax is lost.
Does the Treaty Reduce Tax on Gains From U.S. Property?
No. Article 13 lets each country tax capital gains under its own domestic law, so the treaty gives no reduced rate. The U.S. taxes gains on U.S. real property under FIRPTA, and in a blocker structure the corporation pays that tax on sale. India then taxes what you receive under its own rules.
Does the India-U.S. Treaty Protect Against U.S. Estate Tax?
No. The treaty covers income taxes only. Shares in a U.S. corporation count as U.S.-situated assets for estate tax, and a Form 706-NA return is required when a nonresident's U.S. assets exceed US$60,000 at death. Families should review ownership and succession planning with an adviser before investing.
Does the DTAA Make U.S. Real Estate Investing Less Risky?
No. The treaty only affects how tax is shared between two countries. It does nothing to protect capital, promise distributions or allow an early exit. A private property investment can still lose value, stay illiquid for years and be affected by tenants leaving, refinancing and currency movements, so suitability depends on your wider portfolio.
This article is for general education only and is not investment, tax or legal advice. Rules change and depend on individual circumstances. Investing in private real estate involves risk, including loss of capital, illiquidity, falling property values, distributions not being paid and currency movements. Participation is limited to non-U.S. persons under SEC Regulation S and verified U.S. accredited investors under Regulation D Rule 506(c), and offerings on Raveum are not open to the general public.
