DTAA Between India and Malaysia: Benefits, Rates and Tax Savings in 2025

The Double Taxation Avoidance Agreement, or DTAA, is a crucial bilateral treaty designed to prevent the same income from being taxed in two different countries. The DTAA between India and Malaysia is particularly important for Non-Resident Indians [NRIs], businesses, and investors operating in both nations. This agreement provides clear rules for taxation, offers relief from double taxation, and fosters stronger economic ties. By understanding its provisions, individuals and companies can ensure tax compliance and benefit from reduced tax rates on their cross-border income.

DTAA Between India and Malaysia - Quick Info

This table provides a consolidated overview of the key features of the India-Malaysia DTAA, offering a quick reference for taxpayers.

Objective of the DTAA Between India and Malaysia

The primary objective of the DTAA between Malaysia and India is to create a fair and predictable tax environment that encourages economic cooperation between the two nations.

• Avoidance of Double Taxation: The fundamental purpose of the agreement is to ensure that income earned in one country by a resident of the other is not taxed twice. 
• Prevention of Tax Evasion: The treaty includes provisions for income disclosure to both countries to help prevent tax evasion and ensure compliance.
• Promotion of Bilateral Trade and Investment: By providing tax certainty and reducing the tax burden, the DTAA encourages businesses and individuals to invest and operate across borders.
• Clear Allocation of Taxing Rights: The agreement clearly defines which country has the right to tax different types of income, thus reducing ambiguity and potential disputes.
• Fair and Equitable Taxation: It ensures that taxpayers are treated fairly and are not subjected to discriminatory tax practices in the other country.

Significance of DTAA for India and Malaysia

The significance of the agreement extends beyond individual taxpayers, playing a vital role in the broader economic relationship between India and Malaysia.

• Benefits for NRIs and Individuals: The provisions for DTAA between India and Malaysia for salary income ensure that individuals working temporarily in the other country are not taxed unfairly. 
• Boost for Investors and Businesses: The agreement provides a stable and clear tax framework. This reduces the risk for businesses, making cross-border investments more attractive and financially viable.
• Impact on Bilateral Trade: By removing tax barriers, the DTAA facilitates a smoother flow of goods, services, and capital. This makes it easier for Indian and Malaysian companies to do business with each other.
• Enhanced Tax Certainty: The clear rules laid out in the DTAA minimise the scope for tax disputes. This certainty is crucial for long-term financial planning, both for individuals and corporations. For NRIs, understanding these rules is a key part of their income tax rules.

Taxes Covered under the DTAA Between India and Malaysia

This agreement applies to taxes on income imposed by each country. It is important to know which specific taxes are included to understand the scope of the treaty.

• In India, the DTAA covers:
  • Income Tax, including any surcharge thereon.
• In Malaysia, the DTAA covers:
  • Income Tax.
  • Petroleum Income Tax.

This comprehensive coverage ensures that most forms of income earned by residents of either country are protected from double taxation.

India-Malaysia DTAA Tax Rates

The DTAA rate between India and Malaysia is often lower than the standard domestic tax rate. [1]

Taxation on Capital Gains under the DTAA Between India and Malaysia

The agreement provides specific rules for the taxation of capital gains arising from the sale of assets, which is a key concern for property investors.

• Gains from Immovable Property: Gains from the sale of immovable property [like land or buildings] are taxed in the country where the property is located. This is a crucial point for NRIs who can buy property in India.
• Gains from Shares:
  • If the shares derive more than 50% of their value from immovable property, the gains can be taxed in the country where that property is located.
  • For other shares, the gains are generally taxed in the country of origin.
• Gains from Business Property: Gains from the sale of movable property that is part of a "permanent establishment" [a fixed place of business like an office or factory] are taxed in the country where the permanent establishment is situated.
• Gains from Ships and Aircraft: Gains from the sale of ships or aircraft operated in international traffic are taxable only in the country of residence of the enterprise.

Taxation on Employment Income Under DTAA

The rules for DTAA between India and Malaysia for salary income are designed to provide clarity for the growing number of cross-border employees. [1]

• General Rule: Salary, wages, and other similar payments are generally taxable in the country where the employment is exercised [i.e., where the work is physically performed].
• The 183-Day Rule [Short-term Employment]: An individual's salary is taxed only in their country of residence if all three of the following conditions are met:
  • The individual is present in the other country for a period not exceeding 183 days in any 12 months.
  • The salary is paid by an employer who is not a resident of the other country.
  • The salary is not borne by a permanent establishment of the employer in the other country.
• Directors' Fees: Fees paid to a member of the board of directors of a company are taxable in the country where the company is a resident.
• Government Service: Remuneration paid by the government of one country to an individual for services rendered to that government is taxable only in that country.

What are the Documents required to claim DTAA TDS?

To claim the benefits of the lower TDS rates under the DTAA, certain documents must be provided to the tax authorities.

• Tax Residency Certificate [TRC] from the country of residence.
• Self-attested PAN Card copy.
• Self-attested Form 10F.
• No Permanent Establishment [PE] declaration.
• For certain transactions, a Lower TDS certificate for NRIs may also be required.

How to Claim DTAA Benefits?

Claiming the benefits of the DTAA between India and Malaysia involves a specific process during the tax filing season. [1]

• In India [for Indian residents earning in Malaysia]:
  • When filing Indian income tax return, you must report your global/ Malaysian income.
  • You will have to pay tax in India on this global income as per the applicable slabs.
  • You can then claim a Foreign Tax Credit [FTC] for the taxes already paid in Malaysia on that income by filing Form 67. This prevents double taxation.
• In Malaysia [for Malaysian residents/NRIs earning in India]:
  • To avail the lower TDS rate, the NRI must provide the required documents [TRC, PAN, Form 10F] to the payer in India.
  • The payer in India will then deduct TDS at the lower rate specified in the DTAA. This process often involves filing Form 15CA and 15CB for NRIs.
  • When filing their tax return in Malaysia, they can claim credit for the taxes paid in India.

DTAA Impact on NRIs, Investors, and Businesses

The agreement has a profoundly positive impact on various stakeholders, creating a more favourable environment for cross-border economic activity.

• For NRIs: It simplifies tax obligations on income earned in India, such as from property, investments, or bank accounts, including NRO accounts, which have specific taxation rules.
• For Investors: It provides clarity on the taxation of capital gains and dividends, which is crucial for making informed investment decisions, especially when considering the top cities in India for NRI property investment.
• For Businesses: It offers a stable and predictable tax environment, which reduces the risk and complexity of operating in the other country, thereby promoting bilateral trade and expansion.

How NoBroker Can Help with NRI Services?

For Non-Resident Indians, managing property and tax compliance in India can be a complex process. NoBroker offers exclusive services for NRI property owners, designed to simplify these challenges. From property management and rental assistance to legal due diligence and tax compliance support related to the DTAA between India and Malaysia, our experts provide comprehensive solutions. We help NRIs navigate the complexities of TDS, Form 15CA/15CB, and other legal requirements, ensuring a smooth and hassle-free experience with their Indian property investments.