What is a Double Taxation Avoidance Agreement (DTAA)?
- Double Taxation Avoidance Agreement (DTAA) is an agreement entered into between countries, with the basic objective to avoid, taxation of income in both the countries (i.e. Double taxation of same income) and to promote and foster economic trade and investment between the two countries.
- India has DTAA with over 89 countries such as the US, the United Kingdom, the UAE, Canada, Australia, Saudi Arabia, Singapore and New Zealand, Kenya, Tanzania, South Africa, Sudan etc.
Exemption method of relief is applicable in DTAAs with very few countries for certain incomes only. For remaining all countries, Tax Credit Method prevails for all incomes.
Basic principle under Double Taxation Avoidance Agreement (DTAA)
The Non Resident can select the provisions or rates of taxes, whichever are beneficial under
DTAA
or
the Income Tax Act.
Claiming DTAA benefits
- To take benefit of any DTAA rates/concessions, the person has to obtain a Tax Residency Certificate (TRC) of the country in which he is a tax resident. TRC entitles benefits of the treaty to the person.
- The TRC is on an annual certificate. Thus, is has to be freshly obtained and submitted every year.
- The TRC, along with form 10F of Income Tax Dept. and a declaration of the tax residency in foreign country has to be submitted to the tax deductor or while filing return.
Taxation of same income in two countries
- Credit of taxes paid in India can be availed only to the extent of the proportionate tax of the foreign (Indian) income as per Indian Income Tax for NRI. Excess shall be ignored.
- The proportionate tax credit is available even when there is no DTAA with the respective foreign country.
- Indian Tax Residents are supposed to pay tax on foreign incomes in India as per the Indian rates of tax.
