US-India DTAA Article 15 vs Article 16: What ITA 2025 Actually Says About Your Salary

"I work in the US, I pay US tax, so the India-US treaty means my salary is off-limits for India." That single sentence, repeated in NRI WhatsApp groups and Reddit threads, quietly gets two things wrong. First, it treats the whole India-US Double Taxation Avoidance Agreement (DTAA) as one blanket exemption. Second, it assumes Article 15 (which covers ordinary employment income) and Article 16 (which covers directors' fees) work the same way. They do not, and confusing them is exactly how salaried NRIs and NRI company directors end up with mismatched TDS, blocked treaty claims, and unwelcome notices from the Indian tax department.

Let us separate what the treaty actually says from the folklore, using both the old Income Tax Act 1961 references and the new Income Tax Act 2025 (ITA 2025) framework that is now in force for Tax Year 2025-26.

What the law actually says

The India-US treaty is titled "Convention for the Avoidance of Double Taxation." Two separate articles govern money you receive for personal work:

Article 15 — Dependent Personal Services (employment income). This is your ordinary salary as an employee. The core rule: salary is taxable only in your country of residence, unless the employment is exercised (physically performed) in the other country. If you are a US resident and you physically do your job in the US, India generally cannot tax that salary. But the moment you perform the work on Indian soil, India gets a taxing right over the portion earned during those Indian working days, subject to the "183-day" relief test built into Article 15(2).

Article 16 — Directors' Fees. This is money you receive specifically for being a member of the board of directors of a company that is resident in the other state. The rule is almost the mirror image: directors' fees paid by an Indian company to a US-resident director may be taxed in India regardless of where the board meeting happened or where the director sat. Physical presence is irrelevant for Article 16. The source country (where the company is resident) keeps the taxing right.

That is the misread in one line: Article 15 follows your body; Article 16 follows the company. For salary, where you physically work decides who taxes it. For directors' fees, where the company is incorporated decides who taxes it, and your location is beside the point.

Under ITA 2025, your residential status is still determined by Section 6 (unchanged in substance from ITA 1961), using the day-count and "deemed resident" tests. What ITA 2025 changes is vocabulary and forms, not the treaty. You now report against a "Tax Year" rather than the old "Previous Year"/"Assessment Year" split. Your TDS credits appear in Form 168 (the old Form 26AS), and if remittances are involved you deal with Form 145 (old Form 15CA) and Form 146 (old Form 15CB). The DTAA itself is unaffected by the domestic re-codification — treaty rights under Section 90 (old Act) continue to be honoured under the corresponding ITA 2025 provision, and you still claim them by filing Form 10F plus a Tax Residency Certificate (TRC) from the US (IRS Form 6166).

The Article 15(2) "183-day" relief — read all three conditions

NRIs love to quote "183 days" as if crossing or staying under it settles everything. Article 15(2) actually gives India-work salary back to the residence country (the US) only if all three of these are true:

You are present in India for 183 days or less in the relevant twelve-month period; and
The salary is paid by, or on behalf of, an employer who is not a resident of India; and
The salary is not borne by a permanent establishment (PE) the employer has in India.

Fail any one, and India can tax the Indian-workday salary. The classic trap: a US-employed NRI comes to India for a 90-day project, stays well under 183 days, and assumes exemption — but the cost of their salary for those days is cross-charged to the employer's Indian subsidiary or PE. Condition 3 breaks, and that salary becomes taxable in India even though the day count looked "safe."

Practical implications for NRIs

Scenario 1 — Pure US salary, US work. Priya lives in New Jersey, works for a US employer, never sets foot in India for work during Tax Year 2025-26. Article 15(1) puts the salary squarely with the US. India has no taxing right over it. Priya still files an Indian return if she has other Indian income (rent, capital gains, NRO interest), but her US salary is not Indian-taxable. No Article 15 claim is even needed because there is no Indian source.

Scenario 2 — Split workdays. Arjun is US-resident but spends 70 working days in India during the year on his US employer's project, salary paid entirely from the US, no Indian PE cross-charge. Days in India: 70 (under 183). All three Article 15(2) conditions met. Result: even the India-workday salary is taxable only in the US. If his Indian employer/subsidiary deducted TDS on those days by mistake, he claims a refund by filing ITR-2, invoking the treaty, and attaching Form 10F + TRC.

Scenario 3 — The PE break. Same as Scenario 2, but Arjun's US employer bills those 70 days to its Indian subsidiary as a cost. Condition 3 fails. India taxes salary attributable to 70/365 of the year. On a US$150,000 salary (~₹1.25 crore), roughly ₹24 lakh becomes Indian-taxable, with Indian slab rates applying and US foreign tax credit available on the other side.

Scenario 4 — Directors' fees, Article 16. Meera lives in California and sits on the board of an Indian private limited company. She attends every meeting over video call and never travels to India. She assumes "no physical presence = no Indian tax." Wrong. Article 16 lets India tax directors' fees paid by an Indian-resident company regardless of where she is. The company deducts TDS under Section 194 (director's remuneration) / the ITA 2025 equivalent, and Meera reports it in her Indian return. She uses the treaty and US foreign tax credit to avoid double tax — but she cannot escape Indian tax entirely.

The distinction bites hardest for NRIs who are both an employee and a director. A managing director drawing part salary (Article 15) and part board fee (Article 16) must split the income: the salary follows the workday/PE analysis, the board fee is Indian-taxable at source. Treating the whole package as "salary" and claiming blanket exemption is the single most common error we see.

Step-by-step: what to do

Classify each rupee. Separate ordinary employment salary (Article 15) from board/directors' fees (Article 16). If your Indian company pays you both, get the split in writing.
Fix your residential status first under Section 6 (same in ITA 1961 and ITA 2025). Count India-days for Tax Year 2025-26 carefully — the treaty analysis assumes you have this right.
For salary, run the Article 15(2) three-part test. Under 183 days and non-Indian employer and no PE cost cross-charge = US-only taxation. Any failure = India taxes the Indian-workday portion.
For directors' fees, assume Indian tax applies if the company is Indian-resident. Do not wait for a "physical presence" argument — it does not exist in Article 16.
Obtain your US TRC (IRS Form 6166) and file Form 10F online on the income-tax portal (not by email — online filing has been mandatory since the portal update). No Form 10F, no treaty benefit at source.
Reconcile TDS in Form 168 (old Form 26AS) before filing. Mismatches between what the Indian company deducted and what you claim are the top trigger for scrutiny.
File ITR-2 (NRIs with salary/board fees but no business income), report treaty relief in the correct schedule, and claim US foreign tax credit against Indian tax where India has the primary right.
If money is being remitted out of India, the payer files Form 145 (old 15CA); Form 146 (old 15CB) CA certification kicks in for taxable remittances above the threshold.

FAQ

Q: I'm a US resident and my Indian company pays me a director's sitting fee of ₹2 lakh a year. Do I really owe Indian tax if I never visit India?
Yes. Article 16 gives India the taxing right on directors' fees paid by an Indian-resident company irrespective of your location. The company deducts TDS; you report it in ITR-2 and claim US foreign tax credit to avoid double taxation. There is no physical-presence exemption for board fees.

Q: My US salary had Indian TDS deducted for a 2-month India assignment. My employer is American with no Indian office. Can I get it back?
Likely yes. If your India days are under 183, the salary is paid by a non-Indian employer, and no Indian PE bore the cost, Article 15(2) makes it US-taxable only. File ITR-2, invoke the treaty, attach Form 10F and your TRC, and claim the refund. Keep evidence that no Indian entity was cross-charged for your salary.

Q: Does ITA 2025 change my India-US treaty rights?
No. ITA 2025 re-codifies domestic law and renames forms (26AS to 168, 15CA to 145, 15CB to 146) and periods ("Tax Year" replaces "Previous Year"/"Assessment Year"). Treaty benefits under Section 90 continue; you still claim them with Form 10F + TRC. The DTAA text — Articles 15 and 16 — is untouched.

Q: I split my year 50/50 between US work and India work for the same US employer. How is my salary taxed?
The India-workday half is potentially India-taxable if you fail any limb of the Article 15(2) test — and spending roughly half the year working in India usually pushes your India day-count past 183, which fails condition 1 on its own. Expect India to tax the Indian-workday portion at slab rates, with US foreign tax credit relieving the double tax. Do the day-count precisely, because it decides everything.

Closing

Article 15 and Article 16 are not interchangeable, and "I pay US tax" is not a treaty position. Salary follows where you physically work and who bears the cost; directors' fees follow where the company lives. Get the classification wrong and you either overpay through unclaimed treaty relief or underpay and invite a notice.

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