India–Sri Lanka tax treaty — rates, PE and MLI

The rates, at a glance

Every figure below is taken from the article named beside it, not from a rates table. Read the condition in the same row before you use the rate — in this treaty the condition is usually the whole answer.

Income	Rate	The condition attached to it	Article
Dividends	7.5 per cent of the gross amount — A single flat ceiling with no shareholding threshold and no second tier. Art. 10(2). The only condition is that the beneficial owner of the dividends is a resident of the other Contracting State. There is no participation threshold to satisfy and none to fail.	None in Article 10. But the rate carries A condition that is not in article 10 at all, and anyone quoting 7.5 per cent without IT is quoting half A provision. Protocol paragraph (iii) puts A review clause on…	Article 10; and Protocol paragraph (iii), paragraph 10(2) (rate and beneficial-ownership condition, with the profits-of-the-company saving in the same paragraph); 10(3) (definition); 10(4) (PE/fixed-base carve-out disapplying paragraphs 1 AND 2, throwing the income to Art. 7 or Art. 14); 10(5) (no extra-territorial taxation of dividends, no tax on undistributed profits)
Interest	10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2).	The exemption is in article 11 itself, at paragraph 3 — not in a separate article and not in the Protocol. 'Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be…	Article 11, paragraph 2 (10 per cent ceiling); 3 (exemptions — (a) generic government, (b) four named institutions across the two States, (c) wholly government-owned institutions agreed by exchange of letters); 4 (definition, expressly excluding PENALTY CHARGES FOR LATE PAYMENT); 5 (PE/fixed-base carve-out); 6 (source rule with PE-borne deeming); 7 (special-relationship excess)
Royalties	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). Royalties and fees for technical services share one article and one rate — Article 12 is headed 'royalties and fees for technical services' and Art. 12(2) sets a single 10 per cent ceiling for both. There is no split between equipment royalties and intellectual-property royalties, and no split between royalties and FTS.	The Art. 12(3)(a) royalty definition covers copyright of literary, artistic or scientific work including cinematograph films or films or taps or discs used for television or radio broadcasting (the notified…	Article 12, paragraph 2 (rate, covering royalties and FTS together); 3(a) (definition of royalties); 3(b) (definition of fees for technical services); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2); 5(a) and 5(b) (source rules — note the two-tier structure); 6 (special-relationship excess)
Fees for technical services	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2) — the same rate and the same paragraph as royalties. There is an FTS article here: it is not a standalone article as it is under the Malaysian treaty (Art. 13 there), and it is not absent as it is under the Thai treaty. It is the second half of Article 12.	There is no make-available limb, no 'ancillary and subsidiary' limb and no technical-plan-or-design limb. Art. 12(3)(b) in full: 'The term "fees for technical services" as used in this Article means payments…	Article 12, paragraph 2 (rate); 3(b) (definition, with the Art. 14/Art. 15 exclusions); 4 (PE/fixed-base carve-out); 5(a) and 5(b) (source rules, including the place-of-performance fallback in 5(b) which expressly extends to FTS)

Status

In force	22 october 2013 — the date of the later of the two notifications, under Art. 30(2). Signed in india (at New Delhi) on 22 january 2013 in Hindi, Sinhala and English, all texts equally authentic, the english text to prevail on divergence. This is A wholly new treaty, not A protocol: Art. 30(4) provides that the earlier Convention signed on 27 january 1982 — which covered taxes on income and on capital — 'shall terminate and cease to have effect' when this Agreement becomes effective. The new Agreement covers taxes on income only. Effect under Art. 30(3), and here the two sides are symmetrical, unusually: in india, income derived in any fiscal year beginning on or after the first day of April next following the calendar year of entry into force; in sri lanka, income derived in any taxable year beginning on or after the first day of April next following the calendar year of entry into force. Entry into force fell in calendar 2013, so both sides took effect from 1 april 2014, and the notification says so in terms ('with effect from the 1st day of April, 2014'). There is no separate earlier date for withholding on either side.
Given effect by	Notification No. 23/2014 [F. No. 503/8/2005-ftd-II] / S.O. 956(E), dated 28-3-2014 — issued under section 90 of the Income-tax Act 1961, directing that the provisions of the DTAA be given effect to in India 'with effect from the 1st day of April, 2014'.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	Yes — and IT arrived by substitution on 16 july 2026, replacing A different main-purpose test that was already there. Article 28(6), as substituted by Notification S.O. 3926(E) [No. 88/2026] dated 16-7-2026 w.e.f. 16-7-2026, now reads: 'Notwithstanding the other provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement.' the PPT does not replace the limitation-of-benefits article — IT replaces only paragraph 6 of IT. Paragraphs 1 to 5, the entire objective LOB code, survive untouched and operate cumulatively with the PPT. A Sri Lankan claimant must therefore clear four independent hurdles: the qualified-person gateway (paras 1-2) or the active-business relief (para 3) or competent-authority relief (para 4); the base-erosion proviso to para 2; the principal purposes test (para 6); and the general anti-avoidance machinery of Indian domestic law. Note that the same 2026 notification substituted the preamble to insert the MLI Art. 6(1) treaty-shopping recital, which is what now supplies the 'object and purpose' against which the para 6 saving clause is measured — the two changes are designed to work together and neither should be reported without the other.

Dividends

Rate	7.5 per cent of the gross amount — A single flat ceiling with no shareholding threshold and no second tier. Art. 10(2). The only condition is that the beneficial owner of the dividends is a resident of the other Contracting State. There is no participation threshold to satisfy and none to fail.
The holding that unlocks it	None in Article 10. But the rate carries A condition that is not in article 10 at all, and anyone quoting 7.5 per cent without IT is quoting half A provision. Protocol paragraph (iii) puts A review clause on this exact rate: 'It is understood that, in respect of Article 10 on Dividends the rate of withholding agreed to at 7.5% will be subject to review after three years from the date the Agreement enters into force. In case this rate is not reviewed after 3 years, the agreed rate of 7.5 % will continue.' Note the structure — it is a review obligation with a default-continuation fallback, not a sunset. The three-year point ran from 22 October 2013 and therefore fell in October 2016. Because the fallback is continuation rather than lapse, 7.5 per cent remains the rate unless and until an actual review changed it; nothing in this record shows any review having taken place (see gaps). Do not report the 7.5 per cent figure without Protocol para (iii) attached to it.
Where this comes from	Article 10; and Protocol paragraph (iii), paragraph 10(2) (rate and beneficial-ownership condition, with the profits-of-the-company saving in the same paragraph); 10(3) (definition); 10(4) (PE/fixed-base carve-out disapplying paragraphs 1 AND 2, throwing the income to Art. 7 or Art. 14); 10(5) (no extra-territorial taxation of dividends, no tax on undistributed profits)

7.5 per cent is the lowest dividend ceiling of the three South Asian / asean treaties in this batch (Malaysia 5, Sri Lanka 7.5, Thailand 10) except Malaysia, and it sits at half the Korean and Australian figure. There is no underlying tax credit for either State — Art. 23 gives ordinary credit only, plus exemption-with-progression, and no deemed-paid or tax-sparing provision exists on either side. Read Art. 10 subject to protocol paragraph (ii), the domestic-law-if-more-beneficial rule, which means the treaty rate operates as a ceiling only and can never worsen the position that Indian domestic law would give a Sri Lankan resident.

Interest

Rate	10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2).
Exemptions	The exemption is in article 11 itself, at paragraph 3 — not in a separate article and not in the Protocol. 'Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, provided that IT is derived and beneficially owned by' the listed persons. The double test — derived and beneficially owned — defeats nominee and conduit arrangements fronting for an exempt body. Art. 11(3)(a) is A generic government limb: 'the Government, a political sub-division or a local authority of the other Contracting State'. Any political subdivision or local authority qualifies without being named. Art. 11(3)(b) is A short named list and IT is asymmetric: (i) in the case of india — the reserve bank of india, the export-import bank of india, the national housing bank (three institutions); (ii) in the case of sri lanka — the central bank of sri lanka and nothing else (one institution). Both central banks are covered, but only by name. There is no 'statutory bodies wholly owned by the Government' catch-all, so ifci, idbi and sidbi — all named in the Malaysian treaty — have no exemption here. Sri Lanka has no development-bank equivalent listed at all. Art. 11(3)(c) is the safety valve and IT is narrower than its counterparts in the malaysian and thai treaties, because IT carries A substantive ownership condition on top of the procedural one: 'any other institution the capital of which is wholly owned by the government of that state, as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters.' Two qualifiers travel with it. First, the institution must be wholly government-owned as to capital — majority ownership is not enough, and the Malaysian and Thai equivalents impose no ownership test at all. Second, the competent-authority agreement must be made through exchange of letters, a specified form; the Thai and Malaysian clauses prescribe no form. A partly state-owned lender can never qualify under (c) however willing the competent authorities may be.
Where this comes from	Article 11, paragraph 2 (10 per cent ceiling); 3 (exemptions — (a) generic government, (b) four named institutions across the two States, (c) wholly government-owned institutions agreed by exchange of letters); 4 (definition, expressly excluding PENALTY CHARGES FOR LATE PAYMENT); 5 (PE/fixed-base carve-out); 6 (source rule with PE-borne deeming); 7 (special-relationship excess)

The Art. 11(4) definition is the plain one — debt-claims of every kind, government securities, bonds and debentures including premiums and prizes — without the Thai treaty's renvoi limb ('income assimilated to income from money lent by the taxation laws of the Contracting State in which the income arises'). So India cannot use Art. 11 to import a domestic deeming provision here as it arguably can under the Thai treaty. Penalty charges for late payment are expressly excluded from Art. 11 and fall to Art. 22 (Other Income), where Art. 22(3) preserves source taxation with no ceiling. Note the source-rule asymmetry within this treaty: Art. 11(6) sources interest only 'when the payer is a resident of that State', whereas Art. 12(5)(a) sources royalties and FTS where the payer is 'that State itself, a political sub-division, a local authority, or a resident of that State'.

Royalties

Rate	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). Royalties and fees for technical services share one article and one rate — Article 12 is headed 'royalties and fees for technical services' and Art. 12(2) sets a single 10 per cent ceiling for both. There is no split between equipment royalties and intellectual-property royalties, and no split between royalties and FTS.
Where this comes from	Article 12, paragraph 2 (rate, covering royalties and FTS together); 3(a) (definition of royalties); 3(b) (definition of fees for technical services); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2); 5(a) and 5(b) (source rules — note the two-tier structure); 6 (special-relationship excess)

Rate

10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). Royalties and fees for technical services share one article and one rate — Article 12 is headed 'royalties and fees for technical services' and Art. 12(2) sets a single 10 per cent ceiling for both. There is no split between equipment royalties and intellectual-property royalties, and no split between royalties and FTS.

Where this comes from

Article 12, paragraph 2 (rate, covering royalties and FTS together); 3(a) (definition of royalties); 3(b) (definition of fees for technical services); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2); 5(a) and 5(b) (source rules — note the two-tier structure); 6 (special-relationship excess)

The Art. 12(3)(a) royalty definition covers copyright of literary, artistic or scientific work including cinematograph films or films or taps or discs used for television or radio broadcasting (the notified text reads 'taps', evidently for 'tapes', and the express inclusion of discs is a limb the Malaysian and Thai definitions lack); any patent, trade mark, design or model, plan, secret formula or process; the use of, or the right to use, industrial, commercial or scientific equipment; and information concerning industrial, commercial or scientific experience. The source rule has A second tier that most indian treaties do not have and IT is easy to miss. Art. 12(5)(a) is the ordinary payer-based rule with the PE-borne deeming. Art. 12(5)(b) then adds: 'Where under sub-paragraph (a) royalties or fees for technical services do not arise in one of the contracting states, and the royalties relate to the use of or the right to use, the right or property, or the fees for technical services relate to services performed, in one of the contracting states, the royalties or fees for technical services shall be deemed to arise in that Contracting State.' That is a place-of-use / place-of-performance fallback: where the payer test fails to source the payment to either State, the place where the property is used or the services are performed does the sourcing instead. A third-country payer paying for services performed in India can therefore be caught.

Fees for technical services

Rate	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2) — the same rate and the same paragraph as royalties. There is an FTS article here: it is not a standalone article as it is under the Malaysian treaty (Art. 13 there), and it is not absent as it is under the Thai treaty. It is the second half of Article 12.
Make-available requirement	No
Where this comes from	Article 12, paragraph 2 (rate); 3(b) (definition, with the Art. 14/Art. 15 exclusions); 4 (PE/fixed-base carve-out); 5(a) and 5(b) (source rules, including the place-of-performance fallback in 5(b) which expressly extends to FTS)

There is no make-available limb, no 'ancillary and subsidiary' limb and no technical-plan-or-design limb. Art. 12(3)(b) in full: 'The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in articles 14 and 15 of this agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.' That is the entire definition. It is the broad Indian-domestic-law style formula — managerial services are inside it, and nothing turns on whether technology, knowledge, skill or know-how is transmitted to the payer such that the payer can apply it independently. Routine, repetitive technical support that would escape FTS taxation under the Singapore, UK or US treaties is fully taxable at 10 per cent here from the first rupee, with no threshold and no de minimis. The only carve-outs are the two cross-references: payments falling under Art. 14 (Independent Personal Services) and Art. 15 (Dependent Personal Services) are excluded, pushing individual professionals into Art. 14 and its own thresholds — a fixed base regularly available, or a stay amounting to or exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned (Art. 14(1)(a) and (b)). There is no exclusion for services connected with a sale of property, no construction/assembly/mining exclusion and no personal-use exclusion. Note also the interaction with Art. 5(3)(b): the service PE threshold here is only 90 days, so a Sri Lankan service provider in India faces a 10 per cent gross FTS charge from day one and net PE taxation after 90 days.

Capital gains on shares

Treatment	Source-state taxation of share gains is fully preserved, in two paragraphs. Art. 13(4): 'Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.' Art. 13(5): 'Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State.' All gains on shares in an Indian company are therefore taxable in India, whatever the asset composition, whatever the size of the holding and whenever the shares were acquired.
Grandfathering	None. There is no grandfathering date, no acquisition-date test, no disposal-date test, no transitional window and no reduced-rate period anywhere in Article 13. As with Malaysia and Thailand, this treaty never conferred a share-gains exemption, so there was nothing to grandfather when the Mauritius/Singapore/Cyprus route closed.
Conditions	(i) art. 13(4) uses the vague word 'principally' and there is no protocol gloss supplying A percentage — the same defect as Thailand, and unlike Malaysia (which writes 'more than 50 per cent' into the Article) and Korea (where a Protocol paragraph supplies the figure). There is also no look-back period and no stated testing date. (ii) Art. 13(4) is framed by reference to where the immovable property is situated, not where the company is resident, so it can reach shares in a company resident in neither State; Art. 13(5) by contrast is confined to shares 'in a company which is a resident of a Contracting State'. (iii) the residual paragraph is the orthodox one here, unlike thailand: Art. 13(6) provides that gains on any other property 'shall be taxable only in the contracting state of which the alienator is A resident'. So interests in partnerships and other non-share entities, and gains on shares of third-country companies not caught by para 4, fall to residence-only taxation. This is a material difference from the Thai treaty, whose Art. 13(6) leaves the residual class to both States' domestic law. (iv) Art. 13(3) gives exclusive residence taxation for ships and aircraft operated in international traffic and movable property pertaining to their operation. (v) Art. 13(1) is drafted by reference to 'immovable property referred to in paragraph 2 of article 6' rather than to Article 6 at large. (vi) every limb of article 13 is now subject to article 28 in both its forms — the objective LOB in paras 1 to 5 and the principal purposes test in the substituted para 6.
Where this comes from	Article 13, paragraph 1 (immovable property, by reference to Art. 6(2)); 2 (PE/fixed-base movable property); 3 (ships and aircraft, residence only); 4 (shares of a company whose property consists directly or indirectly PRINCIPALLY of immovable property); 5 (all other shares in a company resident of a Contracting State); 6 (residual — residence only)

Permanent establishment

Construction or installation PE	Not expressed in months — IT is 183 days, and the activity list is the widest of the three South Asian treaties in this batch. Art. 5(3)(a): 'A building site or construction, installation or assembly project or A drilling rig or supervisory activities in connection therewith constitutes a permanent establishment only if such site, project or activities last more than 183 days.' the drilling rig limb is specific to this treaty — neither the Malaysian nor the Thai Article 5(3) mentions a drilling rig, and it sits inside the 183-day threshold rather than being left to the general fixed-place test. Qualifiers: more than 183 days (exactly 183 is not a PE); the threshold governs the site, project or the supervisory activities. Note that, unlike the Thai treaty, sub-paragraph (a) here is drafted as 'last more than 183 days' rather than 'continue for a period or periods aggregating more than 183 days' — there is no express aggregation-of-periods language in the construction limb, and no stated reference period either. There is no contract-splitting or anti-fragmentation rule.
Service PE	90 days within any 12-month period — Art. 5(3)(b), and this is the short fuse on this treaty, matching Malaysia and half the Thai threshold: 'The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose constitutes a Permanent Establishment, but only where activities of that nature continue (for the same or connected project) within the Contracting State for a period or periods aggregating more than 90 days within any 12-month period.' Qualifiers: more than 90 (not 90 or more); aggregated across periods, so intermittent visits add up; confined to the same or connected project; measured over a rolling twelve months, not the fiscal year. Because Article 12 already taxes FTS at 10 per cent gross from the first rupee, crossing 90 days does not create a charge where there was none — it converts a gross charge into net taxation of attributed PE profits under Art. 7, which may be better or worse depending on margin.
Agency PE	Yes — Art. 5(5), with three limbs, and limb (c) is materially wider here than in either the malaysian or the thai treaty. (a) has and habitually exercises an authority to conclude contracts in the name of the enterprise, subject to the Art. 5(4) carve-out; (b) has no such authority but habitually maintains a stock of goods or merchandise from which he regularly delivers on behalf of the enterprise; (c) 'habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise or for the enterprise and other enterprises which are controlling, controlled by, or subject to the same common control as that enterprise.' The Malaysian and Thai versions of limb (c) stop at 'for the enterprise itself'. Here the order-securing test is measured across the whole controlled group, so an agent who spreads his order-securing across several affiliates — a structure that defeats limb (c) under the other two treaties — is caught. Art. 5(6) adds an insurance PE (except in regard to re-insurance) for collecting premiums or insuring risks through a non-independent person. Art. 5(7) protects independent agents but withdraws that protection where the agent's activities are 'devoted wholly or almost wholly on behalf of that enterprise' — a single exclusivity test, as in Thailand, with no additional non-arm's-length condition of the kind the Malaysian treaty requires cumulatively.
Where this comes from	Article 5

Art. 5(2) includes 'a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on' (g), 'a sales outlet' (h) and 'a warehouse in relation to a person providing storage facilities for others' (i). Art. 5(4) is the original pre-beps preparatory-and-auxiliary list, with (a), (b) and (c) as standalone exclusions not themselves subject to a preparatory-or-auxiliary condition. No anti-fragmentation rule and no contract-splitting rule; the 2026 amending notification did not touch Article 5. Art. 5(8) is the standard control-is-not-PE saving. Read Article 5 with protocol paragraph (i), which restricts the profits attributable to a PE: where the enterprise sells goods or carries on business through a PE, the PE's profits 'shall not be determined on the total amount received by the enterprise, but shall be determined only on the basis of that part of the receipts which is attributable to the actual activity of the permanent establishment'; and in contracts for survey, supply, services, constructions or installations, the PE's profits are determined 'only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the state where the permanent establishment is situated'. That is an express anti-force-of-attraction rule and an express offshore-supply protection, and it lives in the Protocol, not in Article 7.

Anti-abuse: limitation of benefits, and the MLI

LOB	Yes — and IT is A full objective limitation-of-benefits code, the only one of its kind among the south asian treaties in this batch. Article 28 paragraphs 1 to 5 (all unamended by the 2026 notification). Art. 28(1) is A gateway: a person other than an individual resident in one State and deriving income from the other is entitled to treaty benefits only if it is a qualified person under para 2 and meets the other conditions of the Agreement. Art. 28(2) defines qualified person, exhaustively, as (a) a Governmental entity; or (b) a company incorporated in either State whose principal class of shares is listed on a recognised stock exchange as defined in para 5 and is regularly traded on one or more recognised stock exchanges, or at least 50 per cent of the aggregate vote or value of whose shares is owned directly or indirectly by one or more individual residents of either State and/or by other persons incorporated in either State at least 50 per cent of whose vote or value is itself so owned; or (c) a partnership or association of persons at least 50 per cent of whose beneficial interests is so owned; or (d) a charitable institution or other tax-exempt entity whose main activities are carried on in either State. The proviso to art. 28(2) is A base-erosion test and IT is the most commonly overlooked limb: even a qualified person loses the benefits if more than 50 per cent of its gross income for the taxable year is paid or payable, directly or indirectly, to persons who are not residents of either State in the form of payments deductible for tax purposes in the person's State of residence — with two carve-outs from that count, namely arm'S length payments in the ordinary course of business for services or tangible property, and payments in respect of financial obligations to a bank incurred in connection with a transaction entered into with the PE of the bank situated in either State. Art. 28(3) is the active-business relief: paras 1 and 2 do not apply, and benefits are available, if the resident actively carries on business in its State of residence — expressly excluding 'the business of making or managing investments for the resident's own account unless these activities are banking, insurance or security activities' — and the income from the other State is derived in connection with or is incidental to that business, and the other conditions of the Agreement are met. Art. 28(4) is discretionary relief: benefits shall nevertheless be granted if the competent authority of the other State determines that the establishment, acquisition or maintenance of the person and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits. Art. 28(5) defines 'recognized stock exchange' as, in India, a stock exchange recognised by the Central Government under section 4 of the Securities Contracts (Regulation) Act 1956; in Sri Lanka, any stock exchange licensed by the Securities and Exchange Commission of Sri Lanka; and any other exchange the competent authorities agree to recognise.
PPT	Yes — and IT arrived by substitution on 16 july 2026, replacing A different main-purpose test that was already there. Article 28(6), as substituted by Notification S.O. 3926(E) [No. 88/2026] dated 16-7-2026 w.e.f. 16-7-2026, now reads: 'Notwithstanding the other provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement.' the PPT does not replace the limitation-of-benefits article — IT replaces only paragraph 6 of IT. Paragraphs 1 to 5, the entire objective LOB code, survive untouched and operate cumulatively with the PPT. A Sri Lankan claimant must therefore clear four independent hurdles: the qualified-person gateway (paras 1-2) or the active-business relief (para 3) or competent-authority relief (para 4); the base-erosion proviso to para 2; the principal purposes test (para 6); and the general anti-avoidance machinery of Indian domestic law. Note that the same 2026 notification substituted the preamble to insert the MLI Art. 6(1) treaty-shopping recital, which is what now supplies the 'object and purpose' against which the para 6 saving clause is measured — the two changes are designed to work together and neither should be reported without the other.
Subject to tax	No subject-to-tax or liable-to-tax condition is attached to any distributive article. The residence article carries the ordinary liable-to-tax formulation: Art. 4(1) defines a resident as any person who 'under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of incorporation, place of management or any other criterion of a similar nature', expressly including the State and any political subdivision or local authority. Place of incorporation is listed as a connecting factor in its own right, as in the Thai treaty but not the Malaysian. The second sentence excludes 'any person who is liable to tax in that State in respect only of income from sources in that State', and — as with Thailand and unlike Malaysia — there is no protocol paragraph preserving territorial-system residents. The corporate tie-breaker in Art. 4(3) is place of effective management with a mutual-agreement fallback, and the 2026 notification did not replace it with a competent-authority rule. Note that Art. 28(2)(d) expressly admits 'a charitable institution or any other tax-exempt entity whose main activities are carried on in either of the Contracting States' as a qualified person, so tax-exempt status is not by itself a bar to benefits under the LOB.
Where this comes from	Article 28 (Limitation of Benefits), paragraphs 1 to 5 as originally notified and paragraph 6 as substituted w.e.f. 16-7-2026; the Preamble as substituted w.e.f. 16-7-2026; Article 4(1) (residence, including the source-only exclusion)

No separate Synthesised Text for Sri Lanka has been identified from the sources used here. But do not read that as 'the MLI has not touched this treaty'. IT has. Unlike every other treaty in this sweep, where MLI changes were published as a separate synthesised text sitting alongside an unamended Comprehensive Agreement, here the MLI-derived changes have been written into the notified comprehensive agreement itself by Notification S.O. 3926(E) dated 16-7-2026 — the preamble and Art. 28(6) both appear in the current notified text as substituted provisions. So for Sri Lanka there is only one document to read, and it already contains the beps preamble and the principal purposes test. Everything reported in this record is taken from that single amended Comprehensive Agreement.

The protocols, in order

A treaty read without its protocols is a wrong answer.

This treaty has been amended, and very recently. Notification S.O. 3926(E) [No. 88/2026, F. No. 503/8/2005-ftd-II], dated 16-7-2026, with effect from 16-7-2026, made two substitutions in the notified Agreement. Both are reflected in the current notified text. This is the single most important status fact about the India-Sri Lanka treaty and it post-dates most published commentary.
Substitution 1 — the preamble. The opening recitals were replaced. The Agreement now recites, after the ordinary economic-cooperation recital, a second recital in beps terms: 'Intending to eliminate double taxation with respect to the taxes covered by this Agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty shopping arrangements aimed at obtaining reliefs provided in this Agreement for the indirect benefit of residents of third States)'. That is the MLI Article 6(1) preamble language, and it now forms part of the treaty's own object and purpose — which matters directly to the operation of the new Art. 28(6), whose saving clause is expressed by reference to 'the object and purpose of the relevant provisions of this Agreement'.
Substitution 2 — article 28, paragraph 6, and IT is A substitution, not an insertion. The trap here is assuming A new PPT was added to A five-paragraph LOB. IT was not: article 28 already had A paragraph 6, and IT was A main-purpose test of its own. Before substitution, Art. 28(6) read: 'Notwithstanding anything contained in the preceding paragraphs of this Article, any person (including individuals) shall not be entitled to the benefits of this Agreement, if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to avoid taxes to which this Agreement applies.' It has been replaced by the MLI-style principal purposes test now set out in anti_abuse.ppt. The comparison is the point and IT cuts both ways. (a) The old test was aimed at arrangements whose main purpose was to avoid taxes; the new test is aimed at arrangements one of whose principal purposes was obtaining that benefit — a wider target, since obtaining a treaty benefit does not require avoidance in any pejorative sense. (b) The old test expressly applied to 'any person (including individuals)', closing off the argument that Art. 28 is confined to the non-individual persons addressed in Art. 28(1); the new paragraph carries no such words, though it is drafted around 'an item of income' and 'any arrangement or transaction' rather than around persons. (c) the new test has an escape the old one did not: 'unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement'. In that respect the substitution softens the anti-abuse rule — and the simultaneous replacement of the preamble is what supplies the object and purpose against which that escape is measured. The two substitutions must be read together.
What the 2026 notification did not touch — and this is as important as what IT did. Paragraphs 1 to 5 of article 28 survive entirely intact. That is the full objective limitation-of-benefits code: the qualified-person gateway in paras 1 and 2, the base-erosion proviso to para 2, the active-conduct-of-business relief in para 3, the competent-authority discretionary relief in para 4 and the recognised-stock-exchange definition in para 5. So this treaty now carries both a complete objective LOB and a principal purposes test, operating cumulatively. No article other than the preamble and Art. 28(6) was amended — Articles 5, 10, 11, 12 and 13 are as originally notified in 2014.
The original protocol of 22 January 2013 is unamended and forms an integral part of the Agreement. It has three lettered paragraphs and every one of them matters — see the notes on each in practitioner_notes and dividends.notes.
Separately, india and sri lanka are also bound by the saarc limited multilateral agreement. See practitioner_notes for what it does and, critically, for its conflict rule.

The words themselves

Quoted from the treaty as notified.

the tax so charged shall not exceed 7.5 per cent of the gross amount of the dividends

Article 10, paragraph 2 of the treaty as notified.

It is understood that, in respect of Article 10 on 'Dividends' the rate of withholding agreed to at 7.5% will be subject to review after three years from the date the Agreement enters into force. In case this rate is not reviewed after 3 years, the agreed rate of 7.5 % will continue.

Article Protocol, paragraph (iii) of the treaty as notified.

any other institution the capital of which is wholly owned by the Government of that State, as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters.

Article 11, paragraph 3(c) of the treaty as notified.

The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.

Article 12, paragraph 3(b) of the treaty as notified.

Where under sub-paragraph (a) royalties or fees for technical services do not arise in one of the Contracting States, and the royalties relate to the use of or the right to use, the right or property, or the fees for technical services relate to services performed, in one of the Contracting States, the royalties or fees for technical services shall be deemed to arise in that Contracting State.

Article 12, paragraph 5(b) of the treaty as notified.

A building site or construction, installation or assembly project or a drilling rig or supervisory activities in connection therewith constitutes a permanent establishment only if such site, project or activities last more than 183 days.

Article 5, paragraph 3(a) of the treaty as notified.

habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise or for the enterprise and other enterprises which are controlling , controlled by , or subject to the same common control as that enterprise.

Article 5, paragraph 5(c) of the treaty as notified.

Notwithstanding the other provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement.

Article 28, paragraph 6, as substituted w.e.f. 16-7-2026 of the treaty as notified.

Notwithstanding anything contained in the preceding paragraphs of this Article, any person (including individuals) shall not be entitled to the benefits of this Agreement, if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to avoid taxes to which this Agreement applies.

Article 28, paragraph 6, as it stood BEFORE substitution on 16-7-2026 — quoted to show what was displaced of the treaty as notified.

It is understood that in relation to this Agreement if at any time the provisions of the domestic law of a Contracting State are more beneficial to a resident of the, other Contracting State, then such more beneficial provisions of the domestic law shall prevail over the provisions of this Agreement.

Article Protocol, paragraph (ii) of the treaty as notified.

in case of a conflict between the provisions of this Limited Multilateral Agreement and that of any bilateral Double Taxation Avoidance Agreement between the Member States, the provisions of the Agreement signed or amended at a later date shall prevail.

Article SAARC Limited Multilateral Agreement, Protocol, paragraph second paragraph — paraphrased opening words; the operative words from 'the provisions of' onward are verbatim of the treaty as notified.

What to watch

The treaty was amended on 16 july 2026 and most published material pre-dates IT. Notification S.O. 3926(E) [No. 88/2026] substituted the preamble and Article 28(6) with effect from 16-7-2026. Any note on the India-Sri Lanka DTAA that does not carry a principal purposes test in Art. 28(6) is now out of date.
The PPT substituted A main-purpose test, IT did not add one to A bare LOB. Article 28 always had six paragraphs. The old para 6 caught arrangements whose main purpose or one of whose main purposes was to avoid taxes, applied expressly to 'any person (including individuals)', and had no object-and-purpose escape. The new para 6 catches arrangements one of whose principal purposes was obtaining A benefit — wider on that axis — but grants an escape where the benefit accords with the object and purpose of the relevant provisions. Whether any given taxpayer is better or worse off depends on which of those two movements bites on the facts.
Paragraphs 1 to 5 of article 28 survived and they are the harder test. This is a full objective LOB — qualified-person gateway, listed-and-regularly-traded test, 50 per cent ownership test, base-erosion proviso, active-business relief, competent-authority relief. It is the only such code among the South Asian treaties in this batch, and it operates cumulatively with the new PPT. In practice the LOB will defeat more claimants than the PPT will.
The base-erosion proviso to art. 28(2) is the most overlooked limb in the whole treaty. More than 50 per cent of gross income paid or payable, directly or indirectly, to non-residents of either State in deductible form, and the benefits go — even for a listed company that passes the qualified-person test. The two carve-outs are narrow: arm's length payments in the ordinary course of business for services or tangible property (so deductible royalties and licence fees to a third-country ip owner are not carved out), and bank financing routed through a PE in either State.
The 7.5 per cent dividend rate has A review clause attached to IT in the protocol, not in article 10. Protocol para (iii) made the rate 'subject to review after three years from the date the Agreement enters into force', with an express fallback that if it is not reviewed the 7.5 per cent 'will continue'. The three-year point fell in October 2016. Because the fallback is continuation and not lapse, 7.5 per cent stands, but a rate quoted without the review clause is a rate quoted without its qualifier.
Protocol para (ii) is A taxpayer-favourable override and IT is unusual to find IT in the instrument itself. Where domestic law is more beneficial to a resident of the other State, the domestic law prevails over the treaty. India has the equivalent in section 90(2) of the Income-tax Act; here it is a treaty obligation on both sides. The practical effect is that every rate in this treaty is a ceiling and never a floor.
Protocol para (i) is an anti-force-of-attraction and offshore-supply rule hiding outside article 7. PE profits are confined to the part of the receipts attributable to the actual activity of the PE, and for contracts for survey, supply, services, constructions or installations, to the part of the contract effectively carried out by the PE in the state where IT is situated. That is exactly the point most frequently litigated on turnkey contracts in India, and it is settled by the Protocol rather than by Article 7.
The service PE threshold is 90 days but IT is not the charging trigger. Unlike Thailand — where the absence of an FTS article makes the service-PE threshold decisive — here Article 12 taxes FTS at 10 per cent gross from the first rupee. Crossing 90 days changes the basis of taxation from gross to net attributed profit, not the existence of it.
The agency PE order-securing limb is group-wide. Art. 5(5)(c) counts orders secured for 'the enterprise or for the enterprise and other enterprises which are controlling, controlled by, or subject to the same common control'. Splitting an agent's mandate across group companies — which defeats the equivalent limb in the Malaysian and Thai treaties — does not work here.
The drilling rig is inside the 183-day construction threshold. Art. 5(3)(a) names 'a drilling rig' alongside building sites and construction, installation and assembly projects. Neither the Malaysian nor the Thai Article 5(3) does. For oilfield services this is the governing threshold, not the general fixed-place test.
The royalty/FTS source rule has A place-of-performance fallback. Art. 12(5)(b) sources royalties and FTS to the State where the property is used or the services are performed when the payer test in 5(a) sources them to neither state. Most Indian treaties have no such second tier. It means a payment from a third-country payer for services performed in India can be treaty-sourced to India.
The interest safety-valve clause carries A wholly-owned condition and A prescribed form. Art. 11(3)(c) admits only institutions 'the capital of which is wholly owned by the Government of that State', agreed 'through exchange of letters'. Both qualifiers are absent from the Malaysian and Thai equivalents. A majority-owned state lender can never qualify.
This treaty has an assistance-in-collection article and its neighbours do not. Article 27 is a full OECD-style assistance-in-collection article — revenue claims including interest, penalties and costs of collection; collection and conservancy measures; no time limits or priority carried across; proceedings on existence, validity or amount confined to the requesting State's courts. Neither Malaysia nor Thailand has one. An Indian demand against a Sri Lankan-resident debtor can be pursued through the Sri Lankan revenue.
Do not forget the saarc limited multilateral agreement — and above all its conflict rule. India and Sri Lanka are both parties to the saarc Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters, signed at Dhaka on 13 November 2005, in force 19 May 2010, given effect in India from 1 April 2011 by Notification No. 3/2011 [S.O. 34(E)]-ftd-II [F. No. 500/96/97-ftd-II] dated 10-1-2011. IT contains no distributive rate articles at all — no dividends, interest, royalties, FTS, capital gains or permanent establishment article — so it never displaces a rate. What it does contain is exchange of information (Art. 5), assistance in the collection of taxes (Art. 6), service of documents (Art. 7), and two substantive exemptions: Art. 8 exempts a visiting professor, teacher or research scholar from tax on teaching or research remuneration for A period not exceeding two years from arrival, at a university, college or other approved institution; and Art. 9 exempts a visiting student on employment income directly related to his studies, but capped at an amount equal to US$ 3,000 per annum and for no more than six consecutive years from first arrival. Its protocol carries the conflict rule that practitioners miss: where the saarc agreement conflicts with a bilateral DTAA between member states, 'the provisions of the Agreement signed or amended at A later date shall prevail'. That is a last-in-time rule, and it is keyed to signature or amendment. The bilateral treaty was signed 22 January 2013 and amended with effect from 16 July 2026, both later than the saarc agreement of 13 November 2005 — so on the face of the Protocol the bilateral treaty prevails on any point of conflict. The saarc Protocol also provides that the agreement applies only in member states where an adequate direct tax structure is in place.
No tax sparing and no underlying credit on either side. Art. 23 gives ordinary credit capped at the domestic tax attributable to the foreign income, plus exemption-with-progression in each sub-paragraph (b). There is no deemed-paid provision and no spared-tax provision — a difference from the Malaysian treaty, which has reciprocal tax sparing.
The 1982 convention covered capital as well as income; the 2013 agreement does not. Art. 30(4) terminates the Convention of 27 January 1982 'for the avoidance of double taxation ... With respect to taxes on Income and on capital'. There is no capital tax article in the current treaty and no wealth-tax coverage.

What this page does not tell you. Whether protocol para (iii)'s three-year review of the 7.5 per cent dividend rate ever took place is not established. The three-year point fell in October 2016. The clause provides that if the rate is not reviewed it continues, so 7.5 per cent stands on the face of the instrument; but nothing in this record shows whether a review occurred, and if it did, with what outcome. The amending instrument itself — Notification S.O. 3926(E) [No. 88/2026, F. No. 503/8/2005-ftd-II] dated 16-7-2026 — was not read in full. Its number, date and effective date, and the two provisions it substituted, are established from the notified treaty text. What was not established is: whether it recites the MLI as its source (the substituted wording is the MLI Art. 6(1) preamble and MLI Art. 7(1) PPT verbatim, but the text read does not itself say so); whether it made any other change not marked in the articles read; and what entry-into-effect rules it lays down beyond 'w.e.f. 16-7-2026' — in particular whether the new Art. 28(6) applies to arrangements entered into before that date. No separate synthesised text for sri lanka has been identified from the sources used here, so there is no MLI-position document to check for provisions that were adopted but not written into the treaty text — for example an MLI Art. 4 dual-resident rule, an MLI Art. 8 dividend holding-period rule, an MLI Art. 9 capital-gains look-back, or MLI Arts. 12 to 15 permanent-establishment changes. On the text as notified none of those appears, but their absence from the notified text is not by itself proof that neither State adopted them. 'principally' in Art. 13(4) is not defined anywhere in the Agreement or the Protocol, and no percentage, testing date or look-back period is supplied. The threshold is undetermined on the face of the instrument. The list of institutions agreed under Art. 11(3)(c) — which requires both wholly-government-owned capital and a competent-authority agreement made through exchange of letters — is not reproduced in this record, and no such exchange of letters was found. It may be empty. Art. 5(3)(a) says the site, project or activities must 'last more than 183 days' without any aggregation-of-periods language and without any stated reference period, while Art. 5(3)(b) immediately below it uses both. Whether that difference is deliberate is not established. Whether either competent authority has recognised any additional stock exchange under Art. 28(5)(c) is not established. The superseded 1982 Convention was not read; only Art. 30(4)'s termination of it was. It covered taxes on capital as well as income, and transactions or wealth positions straddling the changeover would need that text. For the saarc Limited Multilateral Agreement, Schedules I to IV were read but no check was made of whether any member state has since notified changes to its listed taxes, competent authority or fiscal year under Art. 3(4), nor whether the Art. 13 five-year review (due from 19 May 2015) took place.

The India–Sri Lanka tax treaty