HomePersonal FinanceIncometaxHow NRI can get benefits of DTAA agreement?

How NRI can get benefits of DTAA agreement?

DTAA

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 –

  1. Armenia
  2. Australia
  3. Austria
  4. Bangladesh
  5. Belarus
  6. Belgium
  7. Botswana
  8. Brazil
  9. Bulgaria
  10. Canada
  11. China
  12. Cyprus
  13. Czech Republic
  14. Denmark
  15. Egypt
  16. Estonia
  17. Ethiopia
  18. Finland
  19. France
  20. Georgia
  21. Germany
  22. Greece
  23. Hashemite kingdom of Jordan
  24. Hungary
  25. Iceland
  26. Indonesia
  27. Ireland
  28. Israel
  29. Italy
  30. Japan
  31. Kazakastan
  32. Kenya
  33. Korea
  34. Kuwait
  35. Kyrgyz Republic
  36. Libya
  37. Lithuania
  38. Luxembourg
  39. Malaysia
  40. Malta
  41. Mauritius
  42. Mongolia
  43. Montenegro
  44. Morocco
  45. Mozambique
  46. Myanmar
  47. Namibia
  48. Nepal
  49. Netherlands
  50. New Zealand
  51. Norway
  52. Oman
  53. Philippines
  54. Poland
  55. Portuguese Republic
  56. Qatar
  57. Romania
  58. Russia
  59. Saudi Arabia
  60. Serbia
  61. Singapore
  62. Slovenia
  63. South Africa
  64. Spain
  65. Sri Lanka
  66. Sudan
  67. Sweden
  68. Swiss Confederation
  69. Syrian Arab Republic
  70. Tajikistan
  71. Tanzania
  72. Thailand
  73. Trinidad and Tobago
  74. Turkey
  75. Turkemistan
  76. UAE
  77. UAR (Egypt)
  78. UGANDA
  79. UK
  80. Ukraine
  81. United Mexican States
  82. USA
  83. Uzbekistan
  84. Vietnam
  85. 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.

Shitanshu Kapadia
Shitanshu Kapadiahttp://moneyexcel.com/
Hi, I am Shitanshu Kapadia founder of moneyexcel.com. I have written 1800+ articles on this blog. I am PGDBA(marketing), engaged in blogging for 10 years. Moneyexcel blog is ranked as one of the Top 10 Personal Finance Blog in India. The purpose of this blog is to spread financial awareness and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.
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