A Double Taxation Avoidance Agreement (DTAA) is a treaty between two or more countries designed to prevent individuals and businesses from being taxed twice on the same income. This agreement allocates taxing rights between the countries involved, ensuring that taxpayers are not subjected to double taxation on cross-border income.

DTAA is useful for Non-Resident Indians. Usually, NRI live in other countries than India but earns income in India through business or property rents etc. In those cases, it is most likely that income earned in India would attract taxes in India as well as in the country of the NRI resident. when the income earned in India is transferred to the resident country. This means that they will have to pay taxes twice on the same income. As a measure to avoid this, double taxation DTAA (Double Taxation Avoidance Agreement) was amended.

Having DTAA does not mean that the Non-Residents can completely avoid taxes, but it means that non residents can avoid paying higher taxes in both countries. India has DTAA agreement signed with many counties and Income earned by NRI would be taxable according to the tax rates set in the Double Tax Avoidance Agreement with that country.

Objectives of DTAA

• Eliminate Double Taxation: DTAA ensures that income is not taxed in both the source country (where the income is earned) and the residence country (where the taxpayer resides), providing relief to taxpayers.
• Grant Relief to Taxpayers: It allows taxpayers to claim credits or exemptions for taxes paid in one country against their tax liability in the other country, reducing the overall tax burden.
• Prevent Tax Evasion: DTAA facilitates the exchange of tax-related information between countries, helping to prevent tax evasion and avoidance.
• Promote Economic Cooperation: By providing a clear tax framework, DTAAs encourage cross-border trade, investment, and economic cooperation between countries.

Key Benefits of DTAA

• Avoidance of Double Taxation: The primary benefit of DTAA is to prevent individuals and businesses from being taxed twice on the same income in different countries. This helps in eliminating or reducing the tax burden and avoiding double taxation.
• Tax Credit: Taxpayers can claim a credit for taxes paid in the foreign country against their domestic tax liabilities, effectively reducing their overall tax burden.
• Reduced Tax Rates: DTAA often provides for lower Tax Deducted at Source (TDS) rates on income such as interest, dividends, and royalties. For instance, under the India-US DTAA, interest on loans is taxed at 15%, compared to the standard rate of 30%.
• Promotes Cross-Border Trade and Investment: These agreements provide clear guidelines on the taxation of international income, promoting legal certainty and encouraging cross-border investments.
• Promotion of International Trade and Economic Cooperation: By reducing tax barriers, DTAAs facilitate international trade and economic cooperation between countries.
• Prevention of Tax Evasion and Fiscal Evasion: DTAA includes provisions for the exchange of information between countries to prevent tax evasion and fiscal evasion. This helps in ensuring that taxpayers comply with their tax obligations and discourages the misuse of tax havens for illegal activities.

How to Claim DTAA Benefits in India

To avail of DTAA benefits in India, individuals and entities must:

• Obtain a Tax Residency Certificate (TRC): This certificate must be obtained from the Tax Authorities of the home country.
• Submit Form 10F: This form provides additional information required by the Indian Tax Authorities to process the claim.
• Provide Other Necessary Documentation: Depending on the specific provisions of the DTAA and the type of income, additional documentation may be required.

India's DTAA Network

India has entered into DTAAs with over 94 countries, including the USA, UK, Singapore, and Mauritius. These agreements help Indian residents and businesses avoid double taxation on income earned abroad and provide a framework for resolving tax disputes.