Basics of Double Taxation Avoidance Agreements

1. DTAA

2. • Foreign income of person becomes liable in 2
countries :-
▫ The country in which income is earned
and
▫ The country in which the person in resident
• Double taxation of such income is avoided by
means of ADT (Double taxation avoidance
agreements)

3. • What is Double taxation avoidance agreements?
▫ Such agreements are entered into by the
Government of India
with
▫ Governments of other countries under section 90

4. • Also referred as Tax Treaty.
• It is a bilateral economic agreement between two
nations
• that aims to avoid or eliminate double taxation
• of the same income in two countries.

5. Example of DTAA
• An NRI individual living in X country maintains
an NRO account with a bank based in India.
• The interest income on the balance amount in
the NRO account is deemed as income that
originates in India and hence is taxable in India.

6. • In case, India and X nation are contracted under
the DTAA, this income will have tax implications
in accordance with the rate specified in the
agreement.
• Otherwise, the interest income will attract tax @
30.90 % i.e. the current withholding tax.

7. • To be entitled to the benefits laid down under the
provisions of the DTAA, NRI individual needs to submit
below listed documents in a timely manner to the
concerned deductor.
▫ Self-attested PAN card copy
▫ Self-attested visa and passport copy
▫ Tax Residency Certificate (TRC): TRC is a crucial
document that is to be submitted with the deductor for
availing the benefits of the DTAA agreement. The
same can be obtained from the government or tax
authorities of the foreign nation where the NRI is
residing.

8. Current Scenario
• As of now, India has DTAA with 84 nations,
including Armenia, Bangladesh, Finland,
Ireland, Japan, Kazakhstan, Greece, Italy and
several others.

9. What if no DTAA exists?
• Unilateral tax relief is provided on doubly taxed
income under section 91 provisions

10. Modes of granting relief under ADT
Agreements
• Two modes of granting relief:-
▫ Exemption Method
▫ Tax credit Method

11. Exemption Method
• Under this method, a particular income is taxed
in one of the two countries.

12. Tax credit Method
• Income is taxable in both the countries in
accordance with ADT agreement.
• Then, the country of residence of tax payer
allows him credit for the tax charged

13. Unilateral Relief (Sec 91)
• It is provided in case resident tax payers has
suffered tax in India as well as with country with
which there is no ADT agreement.

14. • Requirements to be satisfied to claim double
taxed income:-
▫ The assessee must have been resident in PY
▫ Income must have accrued or arisen to him
outside India