Switzerland DTAA Shock: The 10% TDS Reality for 2026
India Switzerland DTAA TDS rate explained.
Still deducting 5% TDS on payments to Switzerland? Stop now. Learn why the MFN ruling mandates a 10% rate in 2026 to avoid interest and penalties.
It has been exactly one year since Switzerland suspended India’s Most Favoured Nation (MFN) status (effective Jan 1, 2025), following the Supreme Court’s 2023 Nestle SA verdict. Many businesses are still deducting TDS at the old concessional rate of 5% on Dividends, Interest, and Royalties.
The “Legacy” Mistake
Under the India-Switzerland DTAA, the MFN clause allowed a lower rate (5%) linked to treaties with OECD members like Lithuania or Colombia.
- Current Status (Jan 2026): Switzerland has formally revoked this. The “Automatic” application of lower rates is dead.
- The Rule: Unless a specific notification is issued by the Indian Government (which hasn’t happened yet), you cannot claim the 5% rate.
The Financial Risk
If you remit funds to a Swiss vendor today for “Technical Services” or “Royalty” and deduct 5% instead of 10%:
- Disallowance: 100% of the expense can be disallowed under Section 40(a)(i).
- Demand: You will receive a demand for the “Short Deduction” plus 1.5% interest per month.
Corrective Step
For all payments to Swiss entities in the current quarter (Jan-March 2026):
- Apply the 10% Rate (plus Surcharge/Cess).
- If you have already deducted 5% earlier in FY 2025-26, voluntarily deposit the differential tax now to minimize interest.
Foreign Remittance (Form 15CA/CB) Support International remittances require precision. At Kunal Kapoor & Associates, we ensure your Form 15CBs are 100% compliant with the latest DTAA positions.
