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
