Double Taxation Avoidance Agreement [DTAA]

By : Neha Dhyani

Updated : Apr 7, 2022, 11:14

DTAA refers to the Double Taxation Avoidance Agreement. It can be described as a deal signed between two countries enabling an NRI to travel abroad and earn, providing the opportunity to pay one-time taxes. This bilateral agreement encourages people to fly abroad and make money without having to pay taxes twice.

Double Taxation Avoidance Agreement [DTAA] - Overview

Double Taxation Avoidance Agreement [DTAA] specifies some criteria where an NRI does not pay taxes twice. Earnings made in India, services delivered in India, house property located in India, wealth earnings on the transfer of assets in India, fixed deposits and stakes in India, and savings bank accounts in India are some of the areas that NRIs can skip paying taxes on twice.

Exemption and tax credits are two approaches that can be taken as measures to avail the benefits of DTAA. An NRI can avail of the exemption method in both countries to ensure tax relief. On the other hand, tax credits are only applicable in the country of residence to assure tax relief. If someone wants to avail of the benefits of the DTAA, he or she must need to possess some documents including a format for self-declaration and indemnity, a photocopy of a PAN card that has been self-attested, a photocopy of a passport and a self-attested visa, Proof copy from the PIO (if applicable), Certificate of Tax Residence (TRC).

Double Taxation Avoidance Agreement [DTAA] Rates Between Countries

When two countries agree to sign a DTAA, a thorough discussion is carried on between the representatives of the two countries. A fixed-rate of tax interest is specified and is applied to the income of the NRIs under the DTAA agreement. This indicates that when NRIs generate income in India, the TDS will be assessed using the rates designated in the Double Taxation Avoidance Agreement between the two countries.

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Double Taxation Avoidance Agreement [DTAA] Characteristics

  • The Comprehensive DTAA is designed to cover nearly all types of revenues gained from different income sources, including several types of taxes. Wealth tax, gift tax, etc. fall under this category.
  • Limited DAA is designed to apply to certain types of earning sources.

Benefits of Double Taxation Avoidance Agreement [DTAA]

  • The DTAA relieves pressure from double taxation for the countries involved. The exemption of revenue generated abroad from taxation in the native country or the provision of financial services for taxes already paid abroad provides relief from double taxation.
  • In rare circumstances, the DTAA also grants tax concessions that largely benefit the citizens.
  • Even genuine entrepreneurs and investors may be enticed by the regulations of DTAA to channel their investments through low-tax jurisdictions to evade paying taxes. The government loses tax money in the process of this.
  • Through the unambiguous division of taxation rights between the contracting governments, the DTAA also offers tax certainty and stability to diverse investors and firms in both countries.

To conclude, it can be stated that Double Taxation Avoidance Agreement [DTAA] is designed to bring numerous advantages for people working abroad, relieving them from the trouble of double taxation. The probability of tax evasion has also been minimised by implementing the DTAA system.

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FAQs on Double Taxation Avoidance Agreement [DTAA]

Q.1. What is the Double Taxation Avoidance Agreement [DTAA]? Explain with an example.

DTAA stands for Double Taxation Avoidance Agreement. It is a bilateral tax agreement signed between India and some other foreign countries that permits the taxpayers to refrain from paying dual taxes on revenue acquired in both the source and dwelling countries. As an example, If the specified Double Taxation Avoidance Agreement [DTAA] between India and a foreign country is 10%, a taxpayer can avoid paying the specified rate mentioned in the income tax and can only pay the DTAA.

Q.2. Which countries have signed the Double Taxation Avoidance Agreement [DTAA] agreement with India now?

Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Botswana, Brazil, etc. are some names of the countries that have signed the Double Taxation Avoidance Agreement [DTAA] Agreement with India till now.

Q.3. How can someone avail of the benefits of the Double Taxation Avoidance Agreement [DTAA] in India?

The documents required to avail of the benefits of the Double Taxation Avoidance Agreement [DTAA] in India include a Tax Residency Certificate (TRC) obtained from the Government of the home country, a Self-attested copy of Passport and Visa, Indemnity-cum-declaration (for Banks), OCI card (if applicable), Self-attested copy of PAN Card (if available).

Q.4. How many countries have consented to sign the bilateral tax agreement Double Taxation Avoidance Agreement [DTAA] with India now?

India has signed the Double Taxation Avoidance Agreement [DTAA] with 88 nations now, but only 85 of them are currently in force and operational status.