DTAA is Double Tax Avoidance Agreement. DTAA is an agreement between two countries to avoid double taxation. It is globally known as a tax treaty.
The term DTAA is a popular term known to most of the NRI’s. Most of the NRI has dual income, they earn in a foreign country as well as in India. In such cases, it is possible that income earned in one country would attract tax in another country also. This is called double taxation. E.g If you are moving abroad by keeping your income source in India. Such as fixed deposit, saving bank account etc. Taxes are applicable to these sources in India as well as the country of your residence. This is called double taxation. To avoid double taxation and to make the country attractive destination a concept of double tax avoidance agreement is developed.
DTAA does not eliminate the amount of tax payable as a whole. It enables NRI to reduce the tax burden. In simple terms whenever NRIs earn an income in India, instead of normal TDS, tax rate decided under tax treaty DTAA is applicable.
It helps NRI to reduce the tax burden. The tax rate applicable to this type of income would be taxed at the prescribed rate under the act. India has established DDTA with 80 foreign countries across the world.
Also Read – Income Tax for NRI in India
Benefits of DTAA
There are multiple benefits of DTAA. Few sure shot benefits are given below.
- Lower Tax burden for NRI
- Minimize the opportunity of tax evasion
- Double taxes will be avoided on the same income
- Tax exemption
Income Types under DTAA
The income types covered under double tax avoidance agreement are given below.
- Any income arising from capital gain on transfer of assets in India.
- Income from House property located in India.
- Salary Income received in India.
- Interest income earned in India from saving account, fixed deposit etc.
- Royalty income earned in India.
- Income from the service provider in India.
NRI can avoid paying double taxation on above income
Also Read –RNOR Status NRI can save Tax up to 3 Years
How NRI can get benefits of DTAA agreement of Taxation?
In order to claim DTAA, NRI requires to provision Tax Residency Certificate (TRC). NRI will have to produce a Tax Residency Certificate from the country of residence. A foreign national claiming a relief under DTAA is required to make an application in the home country to its tax authorities or to other designated authorities to obtain TRC.
Which methods NRI can use to avail DTAA benefits?
Following methods can be used by NRI to claim DTAA benefits.
Tax Credit
Tax Credit method is used to claim benefit in the country of residence. In this method, a taxpayer needs to add all income from foreign sources into total taxable from the resident country and calculate applicable income tax. Based on the law applicable in that country a person can claim the tax credit.
Tax Exemption
This method is claiming relief in any one country. In this method, a taxpayer is allowed to claim his income from foreign sources under tax exemption. It is a method to eliminate the complete scenario of double taxation.
Deduction
The third method is the deduction method in which the taxpayer pays the tax in the country where income is earned and get subtracted from the global income in the country of residence. The tax is calculated on the difference and paid in the country. This method does not eliminate double taxation completely, that’s why it is less popular method.
List of countries with whom India has singed DTAA are –
- Armenia
- Australia
- Austria
- Bangladesh
- Belarus
- Belgium
- Botswana
- Brazil
- Bulgaria
- Canada
- China
- Cyprus
- Czech Republic
- Denmark
- Egypt
- Estonia
- Ethiopia
- Finland
- France
- Georgia
- Germany
- Greece
- Hashemite kingdom of Jordan
- Hungary
- Iceland
- Indonesia
- Ireland
- Israel
- Italy
- Japan
- Kazakastan
- Kenya
- Korea
- Kuwait
- Kyrgyz Republic
- Libya
- Lithuania
- Luxembourg
- Malaysia
- Malta
- Mauritius
- Mongolia
- Montenegro
- Morocco
- Mozambique
- Myanmar
- Namibia
- Nepal
- Netherlands
- New Zealand
- Norway
- Oman
- Philippines
- Poland
- Portuguese Republic
- Qatar
- Romania
- Russia
- Saudi Arabia
- Serbia
- Singapore
- Slovenia
- South Africa
- Spain
- Sri Lanka
- Sudan
- Sweden
- Swiss Confederation
- Syrian Arab Republic
- Tajikistan
- Tanzania
- Thailand
- Trinidad and Tobago
- Turkey
- Turkemistan
- UAE
- UAR (Egypt)
- UGANDA
- UK
- Ukraine
- United Mexican States
- USA
- Uzbekistan
- Vietnam
- Zambia
It is interesting to note that in some countries there are Free zones (Tax Free Zone) where no tax is applicable on the income. That’s why they are called as Tax Heavens. NRI can easily form your company in countries like Dubai and enjoy zero tax benefits.
Conclusion
From the above discussion, it can be said that DTAA is very good tax planning tool for NRI. They can avoid multiple taxes and lower the tax burden.
Note – DTAA tax rate are different for different countries. It is recommended to contact experts in this subject to claim benefits under double tax avoidance agreement.
