The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one nation, but earns income in another.
DTAAs can be either be comprehensive or limited to certain areas, which means taxing of income from shipping, inheritance, air transport, etc.
India presently has DTAA with 80+ countries, with plans to sign more in future.
To summarize, these Tax treaties are agreements entered between two countries, with the view and agree to:-
The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive investment destination by providing relief on dual taxation. This form of relief is provided by exempting income earned in a foreign country from tax in the resident nation or offering credit to the extent taxes have been paid abroad.
Mr. Dhoni is asked to go to USA to play match against USA and receive payments during the period away from home. The income earned may be subject to tax in both the countries. Hence, considering the benefits of the DTAA between India and USA, Mr. Dhoni can claim relief at the time of filing of tax return for that year.
We can also say, if Mr. Trump, a non-resident Indian, have made investment in India, there may be DTAA provisions that apply to income from such investments.
In some cases, DTAAs are allowed for concessional rates of Taxes. For Instance, interest earned on NRI bank deposits attract TDS @30%. However, under the DTAAs that India has signed with other countries, tax is deducted at 10-15%.
One fact is relevant to another when the one is connected with the other in any of the ways referred to in the provisions of this Act relating to the relevancy of facts.
Tax Credit: Under this Method, tax relief can be claimed in the country of residence. Exemption: Under this Method, tax relief can be claimed in any one of the two nations.
The whole DTAA between India and the other countries are classified among Article ranging from 1 to 30. Lets have an overview of the same:
Article 1: Personal Scope Article
Article 2: Taxes Covered Article 29: Entry into force Article 30: Termination
Article 3: General Definition
Article 5: Permanent Establishment
Article 6 :Immovable Property
Article 7 :Business Profits
Article 12: Royalty & Fees from Technical Services
Article 13: Capital Gains
Article 14: Independent Personal Services
Article 15: Dependent Personal Services
Article 17: Artists & Sports persons
Article 19: Government Services
Article 24 :Non-Discrimination
Article 28: Territorial Extension
To benefits from the provisions laid under the DTAA, an NRI Individual will have to provide the following documents to the dedutor:-
According to the Finance Act 2013, an Individual will not be entitled to claim any benefit of relief under DTAA unless he or she provides a Tax residency Certificate to the deductor. To receive a Tax Residency Certificate (TRC), an application has to be made in Form 10FA (Application for certificate of residence for the purposes of an agreement under section 90 and 90A of the Income Tax Act) to the Income Tax Authorities. Once the application is successfully processed, the certificate will be issued in Form 10FB.
On payment to any NRI two forms are required to be furnished to the Bank for the release of the Foreign payment.
Part A: To be filled up if the remittance is chargeable to tax under the provisions of the Income- tax Act,1961 and the remittance or the aggregate of such remittances, as the case may be, does not exceed five lakh rupees during the financial year.
PART B – To be filled up if the remittance is chargeable to tax under the provisions of the Income-tax Act,1961 and the remittance or the aggregate of such remittances, as the case may be, exceeds five lakh rupees during the financial year and an order/ certificate u/s 195(2)/ 195(3)/ 197 of Income-tax Act has been obtained from the Assessing Officer.
PART C – To be filled up if the remittance is chargeable to tax under the provisions of Income-tax Act, 1961 and the remittance or the aggregate of such remittances, as the case may be, exceeds five lakh rupees during the financial year and a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288 has been obtained.
PART D – To be filled up if the remittance is not chargeable to tax under the provisions of the Income-tax Act,1961 {other than payments referred to in rule 37BB(3)} by the person referred to in rule 37BB(2).
DTAA are the treaties formed between different countries to avoid the double taxation of the same income by two different countries.
:…… in relation to the assesses to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assesses”
Treaty has overriding seniority over domestic laws, if in beneficial /opted by the assesses
