The Double Taxation Avoidance Agreement (DTAA) is a treaty designed to help Non-Resident Indians (NRIs) avoid paying taxes twice on the same income. This agreement protects NRIs from being taxed both in India and their country of residence for income earned across borders. India has signed 85 such agreements, which aim to facilitate trade, investment, and economic cooperation between countries.
What is DTAA?
DTAA is an agreement between two or more countries that prevents the same income from being taxed by both countries. If an individual lives in one country but earns income in another, DTAA ensures that they are not taxed twice on the same income. For instance, if Mr. Arjun, an Indian residing in the UK, earns returns from his investments in India, DTAA will ensure that he is not taxed on the same income by both countries.
Types of DTAA
DTAA relief is offered in two ways:
- Bilateral Treaties:
When two countries enter into a DTAA, the agreement may offer: - Exemption Method: Income is taxed in only one country, while the other country exempts the income from tax.
- Tax Credit Method: Income is taxed in both countries, but the taxpayer receives a tax credit in their country of residence for taxes paid abroad.
- Unilateral Relief:
If no agreement exists between two countries, the country of residence may provide unilateral tax relief.
Nature of DTAA
DTAA agreements can be classified into two categories:
- Comprehensive Agreements: These agreements cover a wide range of income types, including wealth tax, gift tax, etc.
- Limited Agreements: These agreements are applicable to specific income types only.
Benefits of DTAA
DTAA agreements offer several benefits:
- Avoidance of Double Taxation: NRIs can avoid being taxed twice on the same income, either through exemptions or tax credits.
- Reduced Tax Rates: DTAA may offer tax rate reductions on foreign income.
- Lower Withholding Tax: NRIs can benefit from lower withholding tax rates on income like royalties, interest, or dividends in India.
How DTAA Works
DTAA can be implemented in two ways:
- Exemption: A country exempts income earned in the other country from tax.
- Tax Credit: Income is taxed in both countries, but a credit for taxes paid in the other country is granted.
For example, if Mr. Arjun’s investment income is taxed in both the UK and India, and the agreement between the two countries allows for tax exemption in the UK, he will only be liable to pay taxes in India. However, if both countries tax the income, Mr. Arjun will get a tax credit for the amount already paid in the UK when filing his taxes in India.
How NRIs Can Claim DTAA Benefits
NRIs can avail the benefits of DTAA by submitting the following documents:
- Tax Residency Certificate (TRC): This certificate, issued by the tax authorities in the country of residence, confirms that the individual is a resident of that country.
- Form 10F: This form must be submitted to claim benefits under the DTAA.
- Permanent Account Number (PAN): NRIs must also submit their PAN to claim tax benefits.
These documents should be submitted annually within the required time frame.
How to Apply for DTAA Relief
The application process for DTAA relief involves the following steps:
- Check if the Tax Issue Falls Under the DTAA: Ensure that the tax issue is covered by the DTAA agreement between the countries.
- Verify Tax Applicability: Confirm that the tax in question is listed in the relevant article of the agreement.
- Ensure the Treaty is Active: Make sure the DTAA is valid for the specific tax period.
Calculating Double Taxation Relief
NRIs can calculate relief under the DTAA by following these steps:
- Calculate global income (combining income from India and abroad).
- Compute the tax on the global income using applicable tax rates.
- Determine the average tax rate by dividing the total tax by the global income.
- Multiply foreign income by the average tax rate to calculate the tax relief.
- Compare this value with the tax paid in the foreign country. The lower amount is the tax relief granted.
In the absence of a DTAA agreement, relief can be claimed under section 91 of the Indian Income Tax Act.
List of Countries with DTAA with India
India has signed DTAA agreements with numerous countries. Here is a list of some key countries along with their respective DTAA tax rates:
| Country | DTAA TDS Rate |
| United States of America | 15% |
| United Kingdom | 15% |
| Canada | 15% |
| Australia | 15% |
| Germany | 10% |
| South Africa | 10% |
| New Zealand | 10% |
| Singapore | 15% |
| Mauritius | 7.5% to 10% |
| Malaysia | 10% |
| UAE | 12.5% |
| Qatar | 10% |
| Oman | 10% |
| Thailand | 25% |
| Sri Lanka | 10% |
| Russia | 10% |
| Kenya | 10% |
Conclusion
The Double Taxation Avoidance Agreement provides crucial relief for NRIs by ensuring that they are not taxed on the same income in two countries. By offering exemptions or tax credits, DTAA helps encourage foreign investments and makes international trade more efficient. NRIs can easily claim these benefits by following the required application procedures and submitting the necessary documents on time.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.
