International Taxation

International Taxation & DTAA

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International Taxation & DTAA

The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one nation, but earns income in another.

DTAAs can be either be comprehensive, encapsulating all income sources, or limited to certain areas, which means taxing of income from shipping, inheritance, air transport, etc. India presently has DTAA with 90+ countries, with plans to sign such treaties with more countries in the years to come. Some of the countries with which it has comprehensive agreements include Australia, Canada, the United Arab Emirates, Germany, Mauritius, Singapore, the United Kingdom and the United States of America.

The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive investment destination by providing relief on dual taxation. This form of relief is provided by exempting income earned in a foreign country from tax in the resident nation or offering credit to the extent taxes have been paid abroad.

Say, for instance, if an individual is asked to go abroad on deputation and receives payments during the period away from home, the income earned may be subject to tax in both the countries. The individual can claim relief at the time of filing tax return for that financial year, provided there is an applicable DTAA. If the person is an NRI with investments in India, there may be DTAA provisions that apply to income from such investments. In some cases, DTAAs also allow for concessional rates of tax. For instance, interest earned on NRI bank deposits attract TDS of 30%. However, under the DTAAs that India has signed with other countries, tax is deducted at 10-15%.

To benefits from the provisions laid under DTAA, an NRI individual will have to provide the following documents in a timely fashion to the concerned deductor.

  • Self-declaration cum indemnity format
  • Self-attested PAN card copy
  • Self-attested visa and passport copy
  • PIO proof copy (if applicable)
  • Tax Residency Certificate (TRC)

An individual will not be entitled to claim any benefit of relief under Double Taxation Avoidance Agreement unless he or she provides a Tax Residency Certificate to the deductor. To receive a Tax Residency Certificate, an application has to be made in Form 10FA (Application for Certificate of residence for the purposes of an agreement under section 90 and 90A of the Income-tax Act, 1961) to the income tax authorities. Once the application is successfully processed, the certificate will be issued in Form 10FB.

Would you require support from our professional team on filing your Income tax returns? Get in touch with our expert for more details.

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