Double Tax Avoidance Agreement : How NRI Can Get Tax Benefits Under DTAA
Are you NRI who has dual income and earning in a foreign country as well as India? this post may interest you as this tells about how you can get DTAA taxation benefits. DTAA is Double Tax Avoidance Agreement. DTAA is an agreement between two countries to avoid double taxation. It is globally known as a tax treaty.
What is Double Taxation
Many times it happens that one can have income earned in one country would attract tax in another country also. This is called double taxation. E.g If you are moving abroad by keeping your income source in India. Such income would definitely attract taxes in India as well as the country of your residence. This is called double taxation. To avoid double taxation and to make the country attractive destination a concept of double tax avoidance agreement is developed.
How DTAA Helps You?
Don't expect from DTAA to eliminate the amount of tax payable as a whole buy It would definitely enable NRI to reduce the tax burden.
- In simple terms whenever NRIs earn an income in India, instead of normal TDS, tax rate decided under tax treaty DTAA is applicable.
- It helps NRI to reduce the tax burden. The tax rate applicable to this type of income would be taxed at the prescribed rate under the act.
- India has established DTTA with more than 80 foreign countries across the world. You can check the details of agreement on Income Tax website
- Below are tax percent for each country for reference. DTAA tax rate are different for different countries. It is recommended to contact experts in this subject to claim benefits under double tax avoidance agreement.
|Sl No.||Country||TDS Rate|
|22||Greece||As per agreement|
|23||Hashemite kingdom of Jordan||10%|
|36||Libya||As per agreement|
|69||Syrian Arab Republic||7.50%|
|73||Trinidad and Tobago||10%|
|81||United Mexican States||10%|
Benefits of DTAAThere are multiple benefits of DTAA. Below are some of the definite benefits
- The lower Tax burden for NRI
- Minimize the opportunity of tax evasion
- Double taxes will be avoided on the same income
- Tax exemption
Income Types under DTAAThe income types covered under double tax avoidance agreement are given below, and NRI can avoid paying double taxation on below income
- Any income arising from capital gain on transfer of assets in India.
- Income from House property located in India.
- Salary Income received in India.
- Interest income earned in India from saving the account, fixed deposit etc.
- Royalty income earned in India.
- Income from the service provider in India.
How NRI Can Get Benefits of DTAA Of Taxation?In order to claim DTAA
- NRI requires to provision Tax Residency Certificate (TRC).
- NRI will have to produce a Tax Residency Certificate from the country of residence.
- A foreign national claiming a relief under DTAA is required to make an application in the home country to its tax authorities or to other designated authorities to obtain TRC.
Which Methods NRI Can Use to Avail DTAA benefits?Following methods can be used by NRI to claim DTAA benefits.
Tax CreditTax Credit method is used to claim benefit in the country of residence. In this method, a taxpayer needs to add all income from foreign sources into total taxable from the resident country and calculate applicable income tax. Based on the law applicable in that country a person can claim the tax credit.
Tax ExemptionThis method is claiming relief in any one country. In this method, a taxpayer is allowed to claim his income from foreign sources under tax exemption. It is a method to eliminate the complete scenario of double taxation.
DeductionThe third method is the deduction method in which the taxpayer pays the tax in the country where income is earned and get subtracted from the global income in the country of residence. The tax is calculated on the difference and paid in the country. This method does not eliminate double taxation completely, that’s why it is the less popular method.
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