Published Fri, 23 Jan 2026 | Updated Fri, 23 Jan 2026 International taxation
The Double Tax Avoidance Agreement (DTAA) between India and Japan is a treaty that has been signed by both nations to make sure that a person or a business does not get taxed twice for the same income by both countries.
This treaty facilitates and lures investors and professionals alike to contribute or invest in both nations easily. DTAA benefits taxpayers by helping them decrease their tax liability either through claiming a credit for taxes already paid in the other country or through getting tax relief in the other country for double taxation.
The DTAA applies to the following taxes imposed under the laws of Japan:
However, the DTAA does not cover:
India
The DTAA applies to the following taxes in India:
Mr Y is a Japan resident who invests in an Indian firm, earning dividend income and interest income in India. Since this income is sourced in India, it is taxable in India under Articles 10 (Dividends) and 11 (Interest) of the India-Japan DTAA at rates as specified in the treaty.
As Mr Y is also liable for taxes in Japan on his global income, it means that the same income can be taxed by Japan under its domestic laws. For avoiding the double taxation, Mr Y can take credit for the taxes paid to India, under the provisions for tax credits under the DTAA.
Accordingly, the India-Japan Double Taxation Avoidance Agreement ensures that the income received in India by a resident of Japan is subject to tax only in one country, namely through lowered withholding tax in India or foreign tax credit in Japan.
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Also Read: India–Japan Business 2026:Why Japanese Investors Should choose India for Business Expansion? |
The term “Contracting States” refers to the two countries that have entered into a Double Tax Avoidance Agreement (DTAA) with each other.
A Resident means any individual liable for taxes in any country because of his or her residence, domicile, citizenship, incorporation, or management in such country in accordance with the laws of taxation for such country.
If a person is treated as a resident of both India and Japan under the domestic tax laws of each country, then the tax authorities of India and Japan will resolve this issue through mutual consultation.
Based on this mutual agreement, the person will be considered a resident of only one country for the purposes of applying the DTAA.
Income that is earned from immovable property is liable to taxation within the country of that property's located, regardless of a taxpayer’s domicile.
For instance, if an Indian national earns rental income from immovable property located in Japan, the respective income shall be liable for taxation in Japan since the property is physically located there.
Income Covered under Immovable Property:-
According to the provisions laid down under the agreement, the income that is classified under the income from immovable property includes the following:
Dividends derived by a resident of a Contracting State from sources within the other Contracting State may be taxed by the Other contracting State.
At the same time, the country in which the company paying the dividend is resident also has the right to tax such dividend income, subject to the maximum 10% of the gross amount of dividend under the DTAA.
Example: If an Indian company pays dividends to a resident of Japan, the dividend income is also liable to be taxed in Japan, since this country is the country of residence of the shareholder. However, India, being the country where the paying company is resident, also has the right to levy tax on such dividends, subject to the maximum rates specified in the agreement.
Interest which accrues in one of the contracting states and is payable to a resident of another contracting state is subject to tax in the contracting state of residence of the beneficiary.
However, the country in which such interest exists also has the right to tax such income based on its domestic tax laws within the limits specified under the DTAA.
In cases where the beneficial owner of such income is a resident of the other contracting state, the tax chargeable in the source country will not exceed 10% of the gross amount of the interest payment.
The royalties and fees for technical services derived in one of the contracting states and paid to a resident of the other contracting state are to be taxed in the country of residence of the beneficiary.
Furthermore, the country of residency for this income will have the right to tax the royalties or fees for technical services under the domestic tax laws, within the limits stipulated
Maximum Tax Rate in Source Country
If the beneficial ownership of the royalties or fees for technical services is with the recipient, then the tax payable in the source country is restricted to 10% of the gross amount of royalties or fees.
Capital gains that might accrue as a result of the transfer of immovable property may be liable for tax in accordance with the tax laws of the contracting state where such immovable property is located.
Further capital gain arising on transfer of assets other than immovable property which is a part of PE or fixed base may be taxed in the state where such PE or fixed base is located.
In general, it would signify that the taxation right over capital gains are subordinated to the country in accordance with its internal laws through specific regulations of the DTAA.
Example:
If a resident of Japan disposes of immovable property in India, then the capital gains derived from such transfer will be liable for taxation in India under the provisions of the Indian Income-tax Act in respect of the immovable property situated in India.
Fees for directing and other similar fees paid, directly or indirectly, to a resident in one of the Contracting States in his capacity as a director of a company which is a resident of the other Contracting State, are eligible for tax in the other Contracting State.
Example : Mr. D is a resident of Japan and is director of M/s DEF private limited i.e. a company in India. M/s DEF paid remuneration to Mr. D during the year. The remuneration received by Mr. D will be taxable in India since as per DTAA provision the fees received by the director of a company shall be taxable in the country in which such company is located.
The double taxation as per India Japan DTAA shall be avoided as below:-
In India:
In Japan:
|
Particulars |
Rate as per Indian Law |
Rate as Per DTAA India-japan |
|
Dividend Income |
20% |
10% |
|
Interest Income |
20% |
10% |
|
Royalty |
20% |
10% |
|
Fees for technical service |
20% |
10% |
|
Director Fees |
Slab rates |
As per Domestic law |
The Double Tax Avoidance Agreement (DTAA) signed between India and Japan is intended to ensure that income is not subject to double taxation and that taxpayers know where their income is to be taxed.
The DTAA removes uncertainties in taxation by guaranteeing against double taxation and ensuring that income is taxed in the correct jurisdiction. Additionally, to eliminate double taxation in their country of residence, taxpayers must claim foreign tax credits in their home jurisdictions. Accordingly, to achieve accurate taxation and tax planning in cross-border transactions between India and Japan, one needs to be conversant with local taxation regulations and DTAA requirements.
