Paying double taxation can turn out to be burdensome at times. However, NRIs and local residents can avoid paying double tax for the same purpose. Follow this article to learn how to avoid double tax legally.
Every individual earning a decent amount is liable to pay taxes to the government. Paying Tax can be tricky at times. For instance, a person who bears citizenship of one country and invests or earns from another country. This situation is common, especially for NRIs (Non- Resident Indians). In such cases, the individual can be charged double taxation. Double taxation refers to the same subject- matter or income twice at the same time and in the same jurisdiction. Double taxation charges can be burdensome for an individual. However, one can avoid this charge with the help of DTAA.
What do you Understand by DTAA?
A tax agreement known as the Double Taxation Avoidance Agreement referred to as DTAA, was made between India and other nations. It was signed to prevent taxpayers from being subjected to pay both their residence country’s tax and their country of origin’s tax on their earnings. This indicates that the countries concerned have decided on tax rates and taxing jurisdictions for revenue originating in those countries. This agreement encourages the transfer of products, services, and capital between the two nations.
DTAA exists between India and more than 85 nations at the moment. Depending on the types of enterprises or holdings that people of one nation have in another, the DTAA can either include all types of income, or it can focus on a particular type of income. According to the DTAA’s rules, investments made to reduce taxes are not permitted to benefit from the treaty. Therefore, if a business invests in one nation and subsequently reinvests the proceeds in another nation to avoid paying taxes, that investment is not covered by the DTAA.
DTAA rates and regulations differ from one country to another. The rates are usually based on the specific agreement signed by both sides. TDS charges on interest earnings typically vary from 7.50% to 15%, although they can be as high as 10% or 15% in some countries. In this context, people should compare the rates stated with the mentioned countries under DTAA India.
An NRI person must timely submit the following documentation to the relevant deductor to take advantage of the DTAA’s provisions.
- Form for self-declaration and indemnity
- Self-attested copy of a PAN card
- Self-attested passport
- Self-attested VISA
- Proof of Person of Indian Origin (if applicable)
- Certificate of Tax Residence (TRC)
The Finance Act of 2013 states that unless a person gives a Tax Residency Certificate (TRC) to the deductor, they are not eligible to claim any benefits of reduction under the DTAA. To issue a TRC, one must submit an application of Form 10FA to the taxation authorities. Form 10FB will be used to give the certificate when the application has been processed satisfactorily.
Empower your wallet – Try our Income Tax Calculator and take control of your tax planning journey.
List of Countries Who have Signed DTAA with Applicable Rates
| Country | DTAA Tax Rates |
| Syrian Arab Republic | 7.5% |
| Mauritius | 7.5% to 10% |
| Austria, Australia, Bangladesh, Belarus, Botswana, Cyprus, Czech Republic, Hashemite Kingdom of Jordan, Egypt, Ethiopia, Germany, Estonia, Finland, Georgia, France, Israel, Hungary, Indonesia, Iceland, Ireland, Kyrgyz Republic, Japan, Kazakhstan, Kenya, Kuwait, Lithuania, Namibia, Morocco, Montenegro, Myanmar, Mozambique, Netherlands, New Zealand, Oman, Malta, Malaysia, Luxembourg, Zambia, Vietnam, Trinidad and Tobago, Tajikistan, Turkmenistan, UAR (Egypt), Uganda, Ukraine, United Mexican States, Sweden, Swiss Confederation, Sudan, South Africa, Sri Lanka, Slovenia, Saudi Arabia, Russia, Qatar, Portuguese Republic, Serbia | 10% |
| Tanzania, UAE | 12.5% |
| Armenia, Belgium, Canada, Bulgaria, Brazil, China, Denmark, South Korea, Italy, Mongolia, Norway, Nepal, Uzbekistan, UK, USA, Turkey, Philippines, Singapore, Poland, Romania, Spain | 15% |
| Thailand | 25% |
| Libya, Greece | As Per Agreement |
What are the different types of DTAA?
The several kinds of Double Taxation Avoidance Agreements that can be entered into depending on the level of trade and bilateral contacts between nations, which are as follows:
Bilateral Treaties
A bilateral treaty is an agreement made between only two countries. For example, the Double Taxation Avoidance Agreement involving India and the USA is a bilateral treaty because it was signed by just two nations, India and the USA.
Multilateral Treaties
Multilateral treaties, such as the APAC or SAARC Convention, are agreements signed by numerous nations. In tax agreements, a multilateral agreement has been signed by several nations, whereby the treaties which are already present were amended for nations who are the Multilateral Convention’s signatories.
Limited Agreements
Limited Double Taxation Avoidance Agreement covers only a few different forms of income. For instance, only earnings from the shipping and aircraft industries are included in the DTAA between the two countries.
Tax Information Exchange Agreements
The OECD launched the TIEA or Tax Information Exchange Agreements to tackle harmful tax behaviors such as corporate tax mitigation, international tax avoidance, and illegal money flows. With the sharing of data about tax evaders, these agreements encourage global cooperation and openness between governments. Tax Information Exchange Agreements might be bilateral or multilateral.
Comprehensive Agreements
Comprehensive DTAAs frequently include provisions for every source of revenue mentioned in any model agreement. The majority of the DTAAs that India has signed are comprehensive agreements.
What are the benefits of DTAA?
The Double Taxation Avoidance Agreement grants taxpayers several benefits. The main advantage of this is not having to pay double taxes for the same earnings. According to Double Taxation Avoidance Agreement provisions, taxpayers may benefit from lower or deductible rates of taxation in certain circumstances. Their income from interest, royalties, and other sources is subject to lesser TDS charges in India. For instance, Tax Deducted at Source is applied at a rate of 10% to 15% to the interest that NRIs get on bank deposits.
The following forms of income are covered by India’s Double Tax Avoidance Agreement (DTAA), meaning non-resident Indians do not have to pay taxes on them twice:
- Money earned from services offered in India
- Income from Indian-sourced salaries
- Income from Indian immovable property
- Capital gains income
- Income from Indian fixed deposits
- Income from an Indian savings account.
- Tax credits
How to Apply DTAA?
If you’re a non-resident or foreign company earning income in India, you might be eligible for tax benefits under a DTAA. Here’s a basic guide:
- Check Indian Tax Laws: First, figure out how much tax you owe under Indian income tax rules. This includes understanding the type of income you’re earning and the tax rate that applies.
- Review the DTAA: See if your income is covered by the DTAA between India and your home country. If it is, the treaty might have different tax rules.
- Compare and Choose: Compare the tax you owe under Indian law and under the DTAA. You get to choose the lower tax amount. This is called “treaty override.”
- Permanent Establishment (PE): If your company has a permanent base in India, different tax rules might apply.
Countries That India Has a DTAA With
India has a wide-reaching network of tax treaties, often called Double Tax Avoidance Agreements (DTAAs), in place with nearly 100 countries. These agreements are designed to prevent individuals and businesses from being taxed twice on the same income by both India and another country.
So, if you’re an Indian living or working abroad, or an overseas company doing business in India, these tax treaties can offer significant tax benefits. Let’s take a look at some of the major countries where India has these agreements in place:
| 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
When it comes to trading and business, most people are likely to establish their business on global grounds. The moment a company gets established globally, it starts revenue generation from different nations. Nevertheless, the entrepreneur of the business beholds a particular citizenship.
Now, the main issue that comes in is the double tax charged by both countries. To mitigate this issue, countries sign the Double Taxation Avoidance Agreement. Many countries have already signed this treaty. Different countries have imposed different DTAA tax rates. Also, there are different types of DTAA, namely Multilateral, Bilateral treaties, and so on. Moreover, there are certain advantages of signing a DTAA, like lower tax rates, tax credits, tax exemption, and many more.
Did You Know?:
India signed DTAA with 85 other countries to avoid levying taxes twice on the same income.
Read more:
