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.
