Article 11 - Interest
Interest arising in one State and paid to a resident of the other may be taxed in the recipient's State, with the source State retaining a withholding right at the treaty rate.
The India-Australia DTAA withholding rate on interest is 15%. Flat 15%; corrected 2026-09-04 - there is no bank-loan reduction in this treaty at all (no exemption/carve-out language anywhere in Article 11).
Exemptions: Interest paid to the Government of the other State, the Central Bank, or government-owned financial institutions is typically exempt from source taxation under most India treaties. Interest on NRI deposits in Indian banks (NRE/FCNR accounts) is exempt under domestic law (Section 11 read with Schedule IV of IT Act 2025).
Beneficial owner test: As with dividends, the treaty rate applies only to the beneficial owner, not back-to-back conduits.