What is Double Taxation Avoidance Agreement (DTAA)? How NRIs Can Claim Benefits Under DTAA

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What is Double Taxation Avoidance Agreement (DTAA)? How NRIs Can Claim Benefits Under DTAA

For many Non-Resident Indians (NRIs), income is earned both in India and abroad. Without proper safeguards, this can lead to the same income being taxed twice – once in the source country and again in the resident country. To address this issue, the Double Taxation Avoidance Agreement (DTAA) comes into play. It is an important legal provision that ensures taxpayers are not unfairly taxed on the same income in two different countries.

This article explains what DTAA is, its key provisions, and how NRIs can claim benefits under DTAA to reduce their overall tax liability.

What is DTAA?

DTAA stands for Double Taxation Avoidance Agreement. It is a bilateral agreement signed between two countries to avoid the double taxation of income earned in both countries. The purpose is to make sure that the same income is not taxed twice - once in the source country (where the income is generated) and again in the residence country (where the taxpayer resides).

India has signed DTAA with over 90 countries, including the USA, UK, Canada, UAE, Australia, and Germany.

Why is DTAA Important for NRIs?

NRIs often face the issue of double taxation, especially when:

They earn interest from Indian bank accounts

Receive rental income from properties in India

Earn salary or consultancy fees from Indian sources

Hold investments such as mutual funds, stocks, or NRO fixed deposits

DTAA helps reduce or eliminate this double taxation and provides relief in the following ways:

Exemption Method: Income is taxed only in one country

Tax Credit Method: Income is taxed in both countries, but the home country gives credit for the tax paid in the source country

Types of Income Covered Under DTAA

DTAA covers a variety of income types, such as:

Salary income

Interest income (e.g., from NRO accounts)

Dividend income

Capital gains

Rental income from property

Professional or consultancy fees

Royalties and technical services

Each agreement has different tax rates and exemptions for these categories.

TDS Rates Under DTAA for NRIs

The benefit of DTAA allows NRIs to be taxed at a reduced TDS (Tax Deducted at Source) rate on income earned in India. For example:

Nature of Income TDS Rate Without DTAA TDS Rate With DTAA (Varies by Country)
Interest on NRO FD 30% 10%-15%
Royalty Income 10%-30% 10%-15%
Technical Services 10%-30% 10%-15%

How Can NRIs Claim DTAA Benefits?

To claim benefits under DTAA, NRIs must submit specific documents to their income source provider (e.g., bank or employer in India) before the financial year ends.

Documents Required:

Tax Residency Certificate (TRC)

Issued by the foreign country’s tax authority to prove you’re a resident there.

Form 10F

A self-declaration form containing your details and treaty-based claims.

Self-Declaration

A letter stating that you are a resident of the DTAA country and eligible for treaty benefits.

Copy of Passport & Visa

To prove NRI status.

Once these documents are submitted, the payer (e.g., bank) will deduct TDS at the reduced DTAA rate.

How to File Income Tax Return Using DTAA Benefits

When filing your Indian Income Tax Return (ITR):

  • Disclose foreign income (if applicable)
  • Claim DTAA relief under relevant sections
  • Mention TRC and Form 10F details
  • Use Schedule TR and FA in the ITR form to report foreign assets and taxes

You may also claim foreign tax credit if the same income is taxed abroad and in India.

DTAA vs. Foreign Tax Credit (FTC)

While DTAA is an agreement that prevents double taxation, FTC is a mechanism within India’s tax law that allows you to offset tax paid abroad against your Indian tax liability. Both aim to reduce tax burden but operate differently.

Countries Having DTAA with India

Some of the key countries that have signed DTAA with India include:

Country Name DTAA TDS Rate
America 15%
Canada 15%
Australia 15%
England 15%
New Zealand 10%
Singapore 15%
Oman 10%
Netherlands 10%
Qatar 10%
Kenya 10%
Sri Lanka 10%
Japan 10%
Thailand 10%
Malaysia 10%
Mauritius 7.5-10%
France 10%
Italy 15%
Russia 10%

Each country has a different treaty and tax rate, so it’s important to refer to the specific agreement.

Benefits of DTAA for NRIs

  • Avoids double taxation on the same income
  • Lowers TDS rates on income earned in India
  • Provides legal clarity and tax compliance
  • Helps in tax planning and savings
  • Reduces chances of tax disputes

FAQ's About Double Taxation Avoidance Agreement (DTAA)

1. What is the purpose of DTAA for NRIs?

The main purpose of DTAA is to ensure that NRIs do not pay tax on the same income in both India and their country of residence. It provides relief either by exempting income in one country or allowing a tax credit in the other.

2. Who can claim benefits under DTAA?

Any Non-Resident Indian (NRI) who is a resident of a country that has signed a DTAA with India can claim treaty benefits on income earned in India, such as interest, dividends, royalties, salary, and capital gains.

3. Do I need to file ITR in India even after claiming DTAA?

If your total income in India exceeds the basic exemption limit or TDS has been deducted, it is advisable to file an ITR to claim any refunds and ensure compliance.

4. Is it mandatory to submit a Tax Residency Certificate (TRC)?

Yes, TRC is a mandatory document to claim benefits under the DTAA. It proves that you are a tax resident of the treaty country and eligible for DTAA relief.

5. Can I get a refund if TDS was deducted at a higher rate without DTAA?

Yes. If TDS was deducted at a higher rate, you can claim a refund by filing your Income Tax Return (ITR) in India and applying for DTAA benefits with the required documents.