What is Double Taxation Avoidance Agreement (DTAA)?

Every individual needs to work and earn a living. However, paying taxes in both the residence country and the country where one works can be pretty challenging.

To remove such issues, the Double Taxation Avoidance Agreement was signed between India and 85 countries.

It allows NRIs with jobs in other countries to avoid double taxation on the income earned in India and resident countries. Keep scrolling to learn more about this agreement.

DTAA or Double Taxation Avoidance Agreement is an agreement that India signed with 85 other countries to avoid levying taxes twice on the same income.

This provision helps taxpayers accumulate income savings by paying the tax in only one country. DTAAs can be comprehensive in many countries.

The tax structure usually depends on the type of employment or business of a  citizen in a specific country. The common categories include salary, services, capital gains, fixed deposit earnings, property, investment, etc.

This DTAA was formed due to the disparity in the collection of tax on a global scale. For instance, an individual who plans to run an enterprise in another country is forced to pay double taxes. He/she has to pay taxes in his home country as well as his country of income.

For a new entrepreneur, this can be straining in terms of funds and savings.

Even if an individual has shifted to another country and has deposits in India, they can incur interest in both countries as global income. Here, DTAA comes to the rescue.

Apart from learning DTAA meaning, individuals should check the benefits for a detailed understanding of the concept.

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Individuals can avail multiple benefits against this agreement. Some of the common benefits of double taxation agreement, including non-payment of double taxes, are-

• Tax credits
• Tax exemption
• Lower TDS or withholding tax
• It minimises the tax evasion for individuals in both countries who have signed bilateral DTAA agreement

This agreement reduces the withholding tax or lowers DTAA TDS rates on dividend incomes in India.

For instance, capital gains tax is absolved in Cyprus, Egypt, Mauritius, Singapore, etc. This reduces the taxes in general.

Let’s check what are the documents required to gain DTAA benefits without hassle.

NRI’s are obligated to submit the mentioned documents to gain benefits and provisions laid under DTAA. 

These papers are-

• Indemnity or self-declaration form
• Tax Residency Certificate
• PAN card copy (self-attested)
• Self-attested visa
• Passport xerox(self-attested)
• PIO proof copy  

Apart from the mentioned documents, an individual is obligated to submit the Tax Residency Certificate to a deductor to be eligible to claim benefits under this DTAA agreement.

They have to submit Form 10FA to apply for a Tax Residency Certificate under sections 90A and 90 of the Income Tax Act.  After successful verification and processing of the application, the certificate will be issued under Form 10FB.

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The DTAA rate chart and its rules vary in different countries. This factor usually depends on the agreement signed between the countries.

Here, the TDS rates applicable on interests earnings can range between 10% to 15%. The levied rates can range up to 15%.

In this regard, individuals should check the rates specified against the listed countries under DTAA India.

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