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Tax treaties and developing countries



Basics of Double Taxation Avoidance Agreements

Basics of Double Taxation Avoidance Agreements

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Basics of Double Taxation Avoidance Agreements

  1. 1. DTAA
  2. 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. 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. 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. 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. 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. 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. 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. 9. What if no DTAA exists? • Unilateral tax relief is provided on doubly taxed income under section 91 provisions
  10. 10. Modes of granting relief under ADT Agreements • Two modes of granting relief:- ▫ Exemption Method ▫ Tax credit Method
  11. 11. Exemption Method • Under this method, a particular income is taxed in one of the two countries.
  12. 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. 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. 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
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Basics of Double Taxation Avoidance Agreements


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