Understand Double Taxation Avoidance Agreement (DTAA): Benefits, Rates, Required Documents

Everyone works to earn a living. Nevertheless, paying two taxes, one in the country of residence and the country where one works, can be challenging. Therefore, the DTAA was signed between India and 85 countries to eliminate this issue. Double taxation is taxing the same income more than once within the same tenure and jurisdiction. As the world becomes globalised and connected, it has become common for people and companies to conduct business activities across borders and work remotely from home. It means you must pay taxes from the country you earn your income. This is the place where the Double Taxation Avoidance Agreement is applicable. When the same income is taxed in two nations, the overall tax obligation will comprise a sizable part of his total income. Keep reading to know more!

Benefits of Double Taxation Avoidance Agreement

There are numerous perks linked with DTAA for taxpayers. The basic advantage is not paying two taxes on the same income. In addition to this, the other privileges of the Double Taxation Avoidance Agreement are as follows:

  • One of the major goals of the Double Taxation Avoidance Agreement is double taxation relief, aiming to promote a country as an attractive destination venue.
  • Lower tax deducted at source on withholding tax.
  • Decreases tax evasion for working professionals in both countries between whom the bilateral agreement was signed.
  • Tax credit or exemption makes double taxation relief possible. 
  • The DTAA offers credit for the tax paid abroad or exempts income earned overseas from taxation in the nation where the taxpayer lives.
  • Since the agreement avoids and prevents double taxation implementation on the same income, it can be advantageous for business owners and working professionals residing in a country but have offices, shipping firms, or other kinds of business in other countries.
  • The DTAA mentions the number of terms and cases under which you might apply for tax exemption.
  • The tax exemptions offered by the Double Taxation Avoidance Agreement replaced the capital gain taxes, which is beneficial for taxpayers and people associated with a business in trading and business terms.
  • The Double Taxation Avoidance Agreement offers tax credits in the nation where revenue generation occurs or the country of source restricting the same payment twice. 
  • Signing the DTAA is beneficial because it transfers revenue and establishes a business overseas without the hassle of more than one tax payment.
  • The Double Taxation Avoidance Agreement gives legal certainty because it comprises certain guidelines for taxing income earned from other countries. Due to tax situation certainty, it promotes overseas investment in developing countries.
  • The Double Taxation Avoidance Agreement comprises anti-abusive clauses to ensure that only legal citizens can take advantage of the DTAA.
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Double Taxation Avoidance Agreement Rates

The DTAA rates, rules, and regulations range from one country to the other based on the particulars of the agreement signed between two countries. The tax deducted at the source rates on the interests earned in many nations is 10% or 15%, although the rates vary from 7.50% to 15%. The agreement is usually in effect until one of the parties between the two formally terminates them.

The Double Taxation Avoidance Agreement rates and the name of some countries with whom India has signed DTAA are in the table below:

CountryDTAA Rates
Armenia10%
Australia 25%
Thailand25%
Bangladesh10%
Canada15%
Denmark15%
Iceland10%
France10%
Finland 10%
Germany 10%
GreeceAccording to the particulars of DTAA
Indonesia10%
Ireland10%
Georgia10%
Singapore15%
Mauritius7.50% to 10%
Poland15%
Norway15%
Philippines15%

Documents Needed for Claiming DTAA Advantages

The documents required for claiming the benefits of the Double Taxation Avoidance Agreement are as follows:

  • Self-Declaration Form
  • Tax Residency Certificate
  • Self-attested Permanent Account Number Card copy
  • Self-attested VISA
  • Self-attested Passport xerox
  • Person Of Indian Origin Copy

Conclusion

For non-resident Indians working in other countries, the Double Taxation Avoidance Agreement aids in avoiding paying two taxes in the country non-Resident Indians reside in and in the home country, i.e., India. The article comprises some essential information about DTAA. By requesting this privilege, you can avoid paying double taxes. You should know that a country may deduct the tax at source and document the tax paid with the help of a foreign tax credit document. The rules for paying two taxes differ from country to country. It is vital to comprehend the rules and regulations of the Double Taxation Avoidance Agreement to find the tax deducted at the source rate.

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FAQs

1. Where will the income threshold be specified on which a Non-Resident Indian can claim tax credit or exemption for the income earned in India?

The income on which a Non-Resident Indian can claim tax credit or exemption will be specified in the Double Taxation Avoidance Agreement with India. The Double Taxation Avoidance Agreement is different for some countries.

2. Is it necessary to submit documents each year to take advantage of the benefits under the Double Taxation Avoidance Agreement?

The Double Taxation Avoidance Agreement benefits are extended yearly. Non-Resident Indians must provide the relevant documents at the beginning of each fiscal year to continue enjoying the privileges under the Double Taxation Avoidance Agreement.

3. What TDS rates apply to the Double Taxation Avoidance Agreement between India and countries such as the UK, New Zealand, Malaysia, Australia, and the USA?

The tax deducted at the source applicable under the DTAA between India and other countries are as follows-

  • UK-15%
  • New Zealand- 10%
  • Malaysia- 10%
  • Australia- 15%
  • USA- 15%


4. Which sections under the 1961 Income Tax Act relief from paying double taxes?

Sections 90 and 91 of the 1961 Income Tax Act relieve taxpayers from paying double taxes. Section 90 of the 1961 Income Tax Act applies to cases where India has a bilateral trade agreement with another country. In contrast, Section 91 0f the IT Act of 1961 applies to taxes where India has a unilateral trade agreement with other countries instead of a bilateral one. 

5. How can you use the benefits of the Double Taxation Avoidance Agreement?

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