DTAA - Double Taxation Avoidance Agreement : Definition, Types, and Benefits

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Divya Singhvi

DTAA
Income Heads
Income Tax
NRI Taxpayers
Last updated on April 5th, 2021

For NRIs who are working in other countries, the DTAA (Double Taxation Avoidance Agreement) helps to avoid paying double taxes on income earned in both their country of residence and India. Its key objective is that tax-payers in these countries can avoid taxation for the same income twice. India has 85 active agreements. The basic objective of DTAA is to promote and foster economic trade and investment between two Countries by avoiding double taxation. You can check the DTAA entered into by India with other countries from the income tax department’s website through this link Notification of Government.

What is DTAA?

DTAA means a Tax Treaty between two or more countries to avoid taxing the same income twice. When a person is residing in one country and earning income in some other country they are covered under DTAA. This means that involved countries have agreed upon tax rates and jurisdictions for income arising from their country.

For example, Mr. Arjun is an Indian residing in the UK. He has made investments in India on which he earns returns. Now, this Income can be taxable in both India and the UK. But because of DTAA, Mr. Arjun will not be taxed in both countries for the same income.

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Types of DTAA

Relief from Double Taxation can be provided in two ways:

Nature of DTAA

Advantages of DTAA

Treatment of Double Taxation Avoidance Agreement

There are two ways of implementing DTAA:

  1. By either exempting the income earned abroad in its entirety
  2. By providing credit to the extent of tax already paid in the other country

Continuing the example, as Mr. Arjun is covered under DTAA. And the agreement states that the UK will exempt his entire income earned on investments made in India then he has to pay taxes only in India and not the UK. Only one particular country will charge his income.

Now, let’s say that the agreement states that India and the UK both will charge taxes on that income. In that case, Mr. Arjun will get a credit of the taxes paid by him in the UK which will be deducted while paying taxes in India. So he will end up paying taxes in both countries but at lowered rates.

The Governments of different countries enter into Double Taxation Avoidance Agreements to provide reliefs to the tax-payers and encourage more investments.

How can NRI claim benefit of DTAA?

Non resident Indians residing in any of the DTAA countries can avail of tax benefits provided under DTAA by timely submission of the following documents every financial year within the due dates:

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How to apply for DTAA?

The process of application of DTAA involves a series of steps, involving the different types of provisions.

How is Double Taxation Avoidance Agreement relief calculated?

In case there is DTAA with the Country, then Tax Relief can be claimed u/s 90. Steps to compute Double Taxation relief:

  1. Calculate Global Income i.e. aggregate of Indian income and Foreign income;
  2. Compute tax on such global income as per the slab rates applicable;
  3. Calculate the average rate of tax (i.e. Global income divided by the amount of tax);
  4. Compute an amount by multiplying Foreign income with such average rate of tax;
  5. Compute Tax paid in Foreign country

The amount of relief shall be lower of (4) and (5).

In case there is No DTAA, then Tax Relief can be claimed u/s 91. Steps to compute relief:

  1. Compute tax payable in India
  2. Compute lower of Indian rate of tax and rate of tax in Foreign country
  3. Multiply the rate obtained in Step 3 by the doubly taxed income.

Relief will be the amount as computed in Step 3.

List of countries that have DTAA with India

India has signed a Double Tax Avoidance Agreement with most major nations where Indians reside. Following is the list of some of the major countries:

Country DTAA TDS rate
United States of America 15%
United Kingdom 15%
Canada 15%
Australia 15%
Germany 10%
South Africa 10%
New Zealand 10%
Singapore 15%
Mauritius 7.5% to 10%
Malaysia 10%
UAE 12.5%
Qatar 10%
Oman 10%
Thailand 25%
Sri Lanka 10%
Russia 10%
Kenya 10%

FAQ

Who is covered under DTAA?

Individuals who are residing in one country and earning any income from another country are covered under the Double Taxation Avoidance Agreement (DTAA).

How do I take DTAA benefits?

Individuals who are NRIs are covered under DTAA. They are required to submit their “Tax Residency Certificate (TRC)” to the deductor (Bank) along with Form-10F & PAN No.

How many countries have DTAA with India?

India has Double Taxation Avoidance Agreements (DTAA) with a total of 88 countries out of which 86 are presently in force.

What are the details should contains in TRC?

TRC should contain the following details:
– Name of the assessee.
– Status of the assessee (Individual, Firm, Company Etc.)
– Nationality
– Country
– Assessee Tax Identification or Unique Identification number of the relevant Country
– Residential status for the purpose of tax
– Validity Period of the certificate
– Address of the applicant

Got Questions? Ask Away!

  1. Hi @Dixita

    In case there is No DTAA, then Tax Relief can be claimed u/s 91. You can follow the below-mentioned steps to compute relief:

    1. Compute tax payable in India
    2. Compute lower of Indian rate of tax and rate of tax in Foreign country
    3. Multiply the rate obtained in Step 3 by the doubly taxed income.
    4. Relief will be the amount as computed in Step 3

    Hope this help :slightly_smiling_face:

  2. Hey @rkarora1967,
    Since he is a resident, the person is required to pay tax on his global income. Further, he will get the benefit of India – US DTAA wherein he can get the benefit of income tax paid in the USA, whether directly or by deduction. However, such deduction will be restricted to income tax on that income in India.

    So, the business profits earned will be taxable in India. He has to declare total income and then claim credit of the taxes paid in the US under DTAA. So, eventually, his income from the US parent company after deductions will be taxed in India.

  3. Hello @AKSHAY1990 ,

    DTAA can be claimed when same income is taxed in two countries. Since, no tax is levied in his current country, he will pay tax on Interest and Dividend income received in India.

    Hope it helps.

  4. Hey @SanDiego01 ,

    Generally, taxability of income is determined by the residence rule. A Resident refers to a person who as per the relevant laws of the Contracting States, i.e. India and the US are liable to pay tax by reason of domicile, residence, citizenship, place of management, place of incorporation, etc.

    As per Article 10 of India - USA Double Taxation Avoidance Agreement, Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

    Eg: If a US Company pays a dividend to an Indian Resident shareholder, then the dividend income will be liable to tax in India. Further, USA (Company paying the dividend) also has a right to tax the said dividend in their state.

    However, if the beneficial shareholder is a resident of India i.e. a resident of the other contracting state, then the tax so charged shall not exceed:

    (a) 15 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 per cent of the voting stock of the company paying the dividends.
    (b) 25 per cent of the gross amount of the dividends in all other cases.

    You can additionally refer below article for more insights about DTAA:

    Further, you can also file your tax returns and claim the foreign tax credit as well.

    I hope, it helps! :slightly_smiling_face:

  5. I shifted to US in Dec 2020. In filing FY2020-21 tax return as Indian resident,

    • US tax year is Jan-Dec2020. What period of my US salary do I have to include as foreign income, Dec 2020 alone or Dec2020-Mar2021? Since only US-2020 return has been finalized in US, Jan-onwards tax return will only be final next year. So how do I report jan-mar2021 taxes, pro-rated or per actual deducted taxes?
    • To fill in ITR2, do I have to file Form 67 separately first and then fill Form FSI?
    • Also, US-India DTAA treaty says US Federal taxes have to be claimed? Does this mean Social Security tax and California state income tax cannot be claimed?

    Manish.

  6. Hey @magnishe

    While filing your income tax return for FY 2020-21 as indian resident, you should report US salary income according to US tax year i.e. Jan - Dec 2020 and no need to proportionate the income.

    As per India-US DTAA, taxes mainly covered federal income taxes excluding social security tax, personal holding company tax and accumulated earning taxes.

    Further, while filing ITR-2, Form 67 has to be filled on or before the due date of filing return.

    You can read below article of Form 67 for more clarity:

    Hope, it helps!

  7. Hi Kaushal,

    Thanks for the quick reply. This is helpful. Will show Dec2020 income in this year’s ITR. Thanks for pointing out Form67 requirement also.

    So any Jan-Mar2021 US income will be shown in next year’s FY2021-22 return later?

    Manish.

  8. Hi @Gugan

    If your income is doubly taxed than you can claim the credit of the same in your Income Tax Return based upon the DTAA between the countries. In order to claim the relief, you need to file Form 67 on IT Portal before the due date of filing the income tax return.

    We would be happy to help.

    You can share your contact number and email id on Quicko | Contact Us so someone from our team can get in touch with you for details, process, pricing, and discounts?
    Looking forward to simplifying taxes for you !:slightly_smiling_face:

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