Indian residents increasingly use Paasa to hold German equities such as Siemens, SAP, Allianz, BMW, or broad Germany ETFs. Dividend and interest income from these holdings is paid in Germany and reported in India, which can create confusion about who taxes what and how to avoid paying twice.
The India–Germany Double Taxation Avoidance Agreement (DTAA) solves this by ensuring your cross-border market income is taxed only once. This guide explains how the treaty works for dividends, interest, and capital gains, and how Paasa helps you complete German relief or refund and Form 67 so your post-tax returns reflect a single effective tax.
Table of Contents
- What is Double Taxation
- Understanding the India–Germany DTAA
- Residency Rules under DTAA
- Source vs Residence (Who gets to tax what)
- How DTAA Applies to Dividends, Interest & Capital Gains
- How to Avoid Double Taxation
- Example 1: Interest Income
- Example 2: Dividend Income
- Common Mistakes Investors Make
- Conclusion
- FAQs
What Is Double Taxation?
When you earn income in one country but live in another, both countries may try to tax the same income. This overlap is called double taxation.
Example: You are an Indian resident investing in German stocks or equity ETFs through Paasa.
- Germany deducts 26.375% (the standard withholding tax on dividends is 25%, plus a 5.5% solidarity surcharge, totaling 26.375%) as withholding tax on dividends you receive.
- When you file your return in India, you must declare that same income again because India taxes global income.
- Without relief, you would pay both taxes in full, once in Germany and again in India.
The Double Taxation Avoidance Agreement (DTAA) prevents this by setting limits on tax at source and letting you claim credit in India for tax already paid abroad. For Germany, many paying agents withhold 26.375% by default. Treaty relief brings the effective source tax down to 10% through relief at source or a refund claim.
Without DTAA | With DTAA | |
Investor | Indian resident holding Siemens stock via Paasa | Indian resident holding Siemens stock via Paasa |
Dividend received | $10,000 | $10,000 |
Tax withheld in Germany | $2,637.50 (26.375%) | $1,000 (10% effective after relief) |
Tax payable in India (30% slab) | $3,000 | $3,000 |
Credit allowed for German tax paid | None | $1,000 |
Final tax payable in India | $3,000 | $2,000 (balance only) |
Total tax paid overall | $5,637.50 (double taxed) | $3,000 (single effective tax) |
With DTAA, Germany reduces the excess to the treaty 10%, and India gives you a Foreign Tax Credit for that 10% via Form 67. The net result is one effective layer of tax at your Indian rate, not two.
Note: Paasa helps investors apply these treaty benefits correctly through German refund documentation and guided Form 67 filing, ensuring every dollar earned abroad is taxed only once.
What is the India & Germany DTAA Treaty?
The India–Germany Double Taxation Avoidance Agreement (DTAA) makes sure the same income is not taxed twice, once where it is earned (the source country) and again where the investor lives (the residence country).
For Indian residents earning dividends or interest from German stocks, ETFs, or bonds via Paasa, this treaty is what keeps your total tax fair and compliant. Germany deducts tax first; the treaty plus India’s credit rules ensure you do not pay twice.
While the DTAA covers many income types, this guide focuses on markets, specifically:
- Dividends from German shares and equity ETFs
- Interest from German bonds and bond ETFs
- Capital gains on listed shares and ETFs
In simple terms, the DTAA works through two mechanisms:
- Allocating taxing rights: It defines which country has the primary right to tax each category of income, for example dividends, interest, and capital gains.
- Granting relief: If both countries tax the same income, your country of residence (India) allows a tax credit for tax already paid abroad.
With Germany, paying agents often withhold 26.375% by default. Treaty relief brings that down to 10%, usually by applying relief at source or by claiming a refund through the German tax authority. India then gives credit for the 10% that ultimately remains.
You can read the official India–Germany DTAA text on the Government of India’s website here.
For a practical investing workflow for this market, read Invest in Germany from India.
Residency rules under DTAA
The treaty’s first step is to decide where you are a tax resident. If you are considered a resident in both India and Germany during a financial year, the DTAA uses a tie-breaker to pick one country for treaty purposes.
For example, if you live in India but spend significant time in Germany, the tie-breaker decides which country will treat you as its resident for tax purposes. It follows a clear sequence:
- Permanent home: Where you have a fixed home available.
- Centre of vital interests: Where your personal and economic relations are stronger.
- Habitual abode: Where you stay more frequently.
- Nationality: If still unresolved, the country of citizenship applies.
- Mutual agreement: In rare cases, both tax authorities mutually decide.
Understanding residency is crucial because DTAA benefits apply only to residents of one of the treaty countries. For most Indian investors earning German market income such as dividends, interest, or capital gains, India is the country of residence and Germany is the source country.
Source vs Residence (Who gets to tax what)
The treaty divides taxing rights between the country of source (where the income arises) and the country of residence (where you live and file taxes).
Here is how it works for income types relevant to German markets:
Type of Income | Taxed in Source Country (Germany) | Taxed in Residence Country (India) |
Dividends | Yes. Withheld at 26.375% by default, reduced to 10% after treaty relief or refund. | Yes, with credit for German tax that remains after relief. |
Interest | Yes, when distributions are classified as interest from bonds or bond ETFs. 26.375% at payment, reduced to 10% after DTAA relief. | Yes, taxed in India with foreign tax credit for the 10% that remains. |
Capital gains from sale of shares or securities | Usually no for portfolio investors with less than a 1% direct holding of the shares of any German corporation. Germany taxes non-residents only if they held at least 1% of that corporation’s shares at any time in the preceding five years | Yes. |
Employment income | Taxed in the country where services are rendered. Short-stay exceptions can apply. | Yes, if you are tax-resident in India. Foreign tax credit may apply if also taxed in Germany. |
How DTAA Applies to Dividends, Interest & Capital Gains
When Indian investors earn income from German assets such as stocks, equity ETFs, or bonds, Germany deducts tax at source before paying out. This is called withholding tax, and by default it is 26.375% on dividends and on most German-source interest paid via German paying agents.
Under the India–Germany Double Taxation Avoidance Agreement (DTAA), this burden reduces. You apply relief at source or file a refund with the German Federal Central Tax Office to bring German tax down to the treaty rate of 10%, and then you claim a foreign tax credit in India for the tax already paid abroad. Here is how it works for the most relevant income types:
Dividends
- By default, German payers withhold 26.375% on dividends paid by German companies.
- Under the DTAA, once relief is applied, the rate comes down to 10% for India-resident beneficial owners.
- The balance Indian tax is paid in India, with a credit for the 10% German tax that finally remains.
German Dividend Withholding | |
At payment (statutory) | 26.375% |
After DTAA relief/refund (India resident, beneficial owner) | 10% |
Note: For most Paasa investors, the final German rate is 10% after relief. The initial 26.375% is reclaimed or reduced. The same 10% can be claimed as a foreign tax credit in India via Form 67.
Interest
Interest income from ETF distributions classified as interest and from German bonds faces 26.375% German withholding at source by default.
Under the DTAA, for individual investors the treaty rate is 10%. Relief is by applying the treaty at source or by refund. You reclaim the excess German tax so the final rate is 10%.
Example: You receive €30,000 in German-source interest this year.
- Germany withholds €7,912.50 (26.375%).
- In India, at a 30% slab, tax on this interest is €9,000.
- You claim foreign tax credit of €3,000 for the German tax that finally remains after relief.
- You pay the balance €6,000 in India.
- Total tax = €9,000 (your Indian rate), not 26.375% plus India.
German Interest Withholding Tax Rate | |
No relief submitted (default at payment) | 26.375% |
DTAA relief/refund completed (India tax resident, beneficial owner) | 10% |
Note: For most Paasa investors who are individuals, expect 26.375% at payment, a reduction or refund down to 10%, and a matching foreign tax credit in India via Form 67.
Capital Gains
Under the India–Germany DTAA and German domestic rules, capital gains from the sale of listed German securities by an India-resident individual are usually taxed only in India for typical portfolio investors.
India capital gains on foreign shares/ETFs | Rate |
LTCG (held > 24 months) | 12.5% |
STCG (held ≤ 24 months) | As per your income-tax slab |
- Germany generally taxes non-residents on gains only if they held at least 1% of a German company’s shares at any time in the preceding five years. Portfolio investors below 1% usually face 0% German tax at source.
- Indian residents must report and pay capital gains tax in India as part of global income.
- The applicable Indian tax depends on the holding period and asset classification under Indian law. If no German tax is paid at source, there is no foreign tax credit to claim in India.
How to avoid double taxation?
Once both countries have exercised their taxing rights, the DTAA gives you relief through India’s Foreign Tax Credit (FTC) system under Sections 90 and 90A read with Rule 128.
Here’s how it works:
- If Germany finally keeps 10% on your dividend or interest (after relief/refund) and your Indian slab rate is 30%, India allows a credit for the 10% already paid abroad.
- You pay only the remaining 20% in India so that your total equals your Indian rate, not both countries added together.
Note: Paasa helps streamline this flow with clear income summaries, German refund documentation support, and ready-to-file Form 67 figures so every rupee earned abroad is taxed only once.
Example 1: Interest income
Imagine an Indian investor holding units of a German bond ETF. The fund pays interest-type distributions periodically.
- When those distributions are paid while the person is living in India, Germany withholds 26.375% at source.
- Under the India–Germany DTAA, the final rate for individuals is 10%. You apply relief at source or file a refund to reduce 26.375% down to 10%.
- Since the person is an Indian tax resident, India also taxes that same income as part of global earnings.
- Under the DTAA, the individual can claim a Foreign Tax Credit in India for the 10% German tax that finally remains.
- Effectively, they pay only the difference in India if India’s rate is higher, not the full amount twice.
Example: Suppose an Indian investor receives €30,000 of distribution income from the German bond ETF this year while living in India.
Paasa’s role:
- Paasa guides investors through German relief or refund paperwork to reach the 10% treaty rate and prepares ready figures for Form 67 so the FTC is claimed correctly in India.
- We keep distribution breakdowns and German tax vouchers organized, reducing source-tax drag and protecting long-term returns.
Example 2: Dividend Income from German Stocks and ETFs
An Indian investor using Paasa may hold individual German stocks or a Germany-domiciled equity ETF.
- German companies and ETFs pay dividends, and Germany withholds 26.375% at payment by default.
- Under the India–Germany DTAA, you apply relief at source or file a refund to reduce this to 10% if you are an India-resident beneficial owner.
- In India, you must still declare the gross dividend and claim a Foreign Tax Credit (FTC) for the 10% finally kept by Germany.
How DTAA helps
- The 10% German tax that remains after relief or refund can be claimed as FTC in India through Form 67.
- If your Indian slab rate is 30%, you pay only the remaining 20% in India, so your total stays 30%, not 26.375% + 30%.
- Compliance stays straightforward with Paasa’s relief/refund guidance and ready FTC figures.
Example: Let’s say an Indian investor using Paasa receives $20,000 in annual dividends from German shares or a Germany-domiciled equity ETF.
Paasa’s role:
- Paasa guides investors through the German relief or refund process and the Form 67 credit step so that global income is reported correctly and DTAA benefits apply automatically.
- We keep dividend breakdowns and German tax vouchers organized, reducing source-tax drag and protecting long-term returns.
Common Mistakes Investors Make
Even seasoned investors slip up when managing German equity and bond income across two tax systems. These are not about intent, just clarity. Here are the most common ones to avoid:
Assuming German withholding is automatically adjusted in India
The 26.375% deducted at payout does not sync with Indian filings. You must first apply relief at source or file a refund with BZSt to reach 10%, then claim the credit in India.
Skipping Form 67 submission
Missing Form 67 can forfeit your Foreign Tax Credit, even if German tax was paid and reduced to 10%.
Not reporting foreign assets in Schedule FA
Every overseas brokerage account and security must be disclosed in your Indian return. Non-disclosure can trigger scrutiny later.
Confusing inheritance or wealth taxes with double taxation
The India–Germany DTAA covers income taxes only. German inheritance or gift tax sits outside the treaty and usually matters only for domestic assets or 10% or larger stakes. Germany does not levy a net wealth tax at present.
Forgetting the treaty mechanics on dividends and interest
Germany withholds 26.375% at payment. Under the DTAA, you reduce this to 10% by relief or refund and then claim FTC in India for that 10%. Filing correctly preserves your post-tax return.
Claiming credit for the wrong amount
You cannot claim FTC for the full 26.375% deducted or for any withholding suffered inside foreign-domiciled ETFs. Credit only the 10% that finally remains after German relief, capped by Indian tax on that income.
Relying on W-8BEN for Germany
W-8BEN is a U.S. form. It does nothing for German withholding. Use BZSt relief or refund forms, provide your TRC, and give 10F details plus a beneficial-owner declaration if asked.
Conclusion
The India–Germany DTAA ensures that Indian residents earning from German equities and bond income pay tax only once on their global income. Using German relief to reach the 10% treaty rate and claiming credit in India helps you stay compliant and protect post-tax returns.
About Paasa
Paasa is an Indian investor’s gateway to compliant global investing, trusted by HNIs, family offices, and professionals with overseas income. It helps you diversify across the U.S., Europe, Japan, and more.
What sets Paasa apart is its India-first compliance layer for cross-border investors:
- FEMA, LRS, and DTAA alignment built into every transaction and cash flow.
- Integrated tax analytics and reporting for Indian residents investing abroad, covering LTCG, STCG, dividend tax, and TCS tracking.
- End-to-end support for remittances, reconciliation, and tax-credit documentation such as Form 67.
Whether you invest in U.S. equities, UCITS ETFs, or curated global equity strategies, Paasa offers one transparent platform to keep your portfolio aligned with India’s tax and regulatory framework.
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Disclaimer
This article is for information only and is not investment, tax, or legal advice. It relies on public sources and our interpretation of current regulations, which can change. Investing in global markets involves risks, including currency risk, political risk, and market volatility. Past performance does not predict future results. Please seek advice from qualified financial, tax, and legal professionals before acting.
