The Double Taxation Avoidance Agreement (DTAA) is a treaty signed between two or more countries to help taxpayers avoid being taxed twice on the same income. For Non-Resident Indians (NRIs) earning income in both India and their country of residence, DTAA plays a crucial role in reducing their tax burden.
How NRIs can Claim Benefits Under DTAA
NRIs earning interest, dividends, royalties, or salary in India may be subject to tax in both India and their country of residence. DTAA ensures that this income is taxed in only one of the two countries or provides relief through tax credits, thereby protecting the individual from paying tax twice.
DTAA Rates
Each agreement has its own specific tax rates for different types of income. For example, the DTAA rate for interest income may be capped at 10% or 15%, depending on the country. These rates are usually lower than the regular Indian withholding tax rates and help reduce the overall tax outflow for NRIs.
How to Find if DTAA is Applicable?
To check if DTAA applies, NRIs should verify whether India has a DTAA with their country of residence. They must also ensure the type of income earned is covered under the agreement. The Income Tax Department of India provides a complete list of countries with which India has signed DTAA treaties.
How to Apply DTAA?
To apply the DTAA benefit at the source (such as when banks deduct TDS on interest), NRIs must submit a Tax Residency Certificate (TRC) from their country of residence to the Indian income payer. Without this, the standard higher tax rates may be applied.
Documents Required for DTAA
Key documents include:
- Tax Residency Certificate (TRC)
- Form 10F (self-declaration with details like nationality and tax ID)
- A self-attested copy of passport and visa
- PAN card (Permanent Account Number in India)
How to Claim DTAA Benefits?
There are two primary methods:
- Exemption method – income is taxed only in one country.
- Tax credit method – income is taxed in both countries, but the taxpayer gets a credit in their home country for tax paid in India.
NRIs can claim DTAA benefits while filing their Indian income tax return or request lower TDS at the source by submitting the relevant documents in advance.
Few Basic Principles of DTAA
- Relief from double taxation
- Tax fairness and neutrality
- Certainty for taxpayers
- Exchange of information between countries
Countries That India Has a DTAA With
India has signed DTAA with over 90 countries, including the USA, UK, Canada, UAE, Australia, Singapore, and Germany.
Conclusion
The Double Taxation Avoidance Agreement is a significant financial safeguard for NRIs. Understanding how DTAA works and claiming its benefits can help save money, ensure compliance, and simplify international taxation complexities.