Indian interest and dividends when you are a Vietnamese tax resident

In India, interest on an NRE account is exempt under Section 10(4) while you hold non-resident status, so India charges nothing and deducts no TDS. NRO interest is taxable, with TDS under Section 195, and Indian dividends are taxable with TDS deducted by the company, both reducible to the treaty rate of 10% if you file a tax residency certificate and Form 10F. So on the Indian side, NRE is untaxed and NRO interest and dividends are taxed at up to 10%.

Vietnam taxes its residents on worldwide income, and treats dividends and non-bank interest as investment income at a flat 5%. That low rate is where the two traps hide.

First, the NRE trap. NRE interest is exempt in India, but that is an Indian rule, and for a Vietnamese resident it is worldwide income taxed at 5%. Because India levied nothing, there is no India tax to credit, so you bear the full Vietnamese 5%. The tax-free NRE account is tax-free only in India. Second, the capped credit, which surprises people who assume a treaty means paying only the lower rate. On NRO interest and dividends, India taxes at the treaty rate of 10%, and Vietnam taxes at 5% but gives a credit for the India tax capped at its own 5%. So Vietnam's credit soaks up 5% of the India tax, the other 5% is not refunded, and the net effect is that you bear the higher India rate of 10%, with Vietnam collecting nothing extra. So a treaty relieves double tax, it does not automatically hand you the lower of the two rates.