ARTICLE 11
Interest
1. Interest arising in a Contracting state and paid to a
resident of the other Contracting state may be taxed in that
other State.
2. However, such interest may also be taxed in the
Contracting state in which it arises, and according to the laws
of that State, but if the beneficial owner of the interest is a
resident of the other Contracting state, the tax so charged shall
not exceed:
a) 10 percent of the gross amount of the interest if
such interest is paid on a loan granted by a bank carrying on
a bona fide banking business or by a similar financial
institution (including an insurance company); and
b) 15 percent of the gross amount of the interest in all
other cases.
3. Notwithstanding the provisions of paragraph 2 of this
Article, interest arising in a Contracting state:
a) and derived and beneficially owned by the Governmentof the other Cont
local authority thereof, the Reserve Bank of India, or the
Federal Reserve Banks of the United States, as the case may
be, and such other institutions of either Contracting state
as the competent authorities may agree pursuant to Article 27
(Mutual Agreement Procedure);
b) with respect to loans or credits extended or endorsed
i) by the Export Import Bank of the United States,
when India is the first-mentioned Contracting state; and
ii) by the EXIM Bank of India, when the United States
is the first-mentioned Contracting state; and
c) to the extent approved by the Government of that
state, and derived and beneficially owned by any person,
other than a person referred to in subparagraphs (a) and (b),
who is a resident of the other Contracting state, provided
that the transaction giving rise to the debt-claim has been
approved in this behalf by the Government of the first-
mentioned Contracting state;
shall be exempt from tax in the first-mentioned Contracting
state.
4. The term "interest” as used in this Convention means
income from debt-claims of every kind, whether or not secured by
mortgage, and whether or not carrying a right to participate in
the debtor’s profits, and in particular, income from government
securities, and income from bonds or debentures, including
premiums or prizes attaching to such securities, bonds, or
debentures. Penalty charges for late payment shall not be
regarded as interest for the purposes of the Convention.
However, the term "interest" does not include income dealt with
in Article 10 (Dividends).
5. The provisions of paragraphs 2 and 3 shall not apply if
the beneficial owner of the interest, being a resident of a
Contracting state, carries on business in the other Contracting
State in which the interest arises, through a permanent
establishment situated therein, or performs in that other state
independent personal services from a fixed base situated therein,
and the interest is attributable to such permanent establishment
or fixed base. In such case the provisions of Article 7
(Business Profits) or Article 15 (Independent Personal Services),
as the case may be, shall apply.
6. Interest shall be deemed to arise in a Contracting state
when the payer is that state itself or a political subdivision,
local authority, or resident of that state. Where, however, the
person paying the interest, whether he is a resident of a
Contracting state or not, has in a Contracting state a permanent
establishment or a fixed base, and such interest is borne by such
permanent establishment or fixed base, then such interest shall
be deemed to arise in the Contracting state in which the
permanent establishment or fixed base is situated.
7. Where, by reason of a special relationship between the
payer and the beneficial owner or between both of them and some
other person, the amount of the interest, having regard to the
debt-claim for which it is paid, exceeds the amount which would
have been agreed upon by the payer and the beneficial owner in
the absence of such relationship, the provisions of this Article
shall apply only to the last-mentioned amount. In such case the
excess part of the payments shall remain taxable according to the
laws of each Contracting state, due regard being had to the other
provisions of the Convention.