All About Double Taxation Avoidance Agreement

26 December 2022
5 min read

Taxing the same income or subject matter more than once for the same reason, over the same time period, and in the same tax jurisdiction is known as Double Taxation. When such income is taxed in two different countries, the total tax obligation will constitute a sizable portion of his overall income.

Every person must work to support themselves. Taxes can be difficult to pay in both the country of residence and the country of employment. The DTAA full form Double Taxation Avoidance Agreement was signed by India and 85 other nations, including DTAA between India and USA, to resolve these problems. It enables NRIs who work abroad to avoid paying taxes twice on their income from both their home country and their country of residence.

In this blog, we will find out more about this contract of Double Taxation Avoidance Agreement and how it works.

What is Double Taxation?

Double Taxation agreements merely seek to do away with Double Taxation in instances of cross-border income flow. They are widely pursued by nations to prevent a situation where international economic activities are discouraged.

In short, when two taxes are applied to the same source of income before it is converted to net income, this is known as Double Taxation.

Double Taxation Avoidance Agreement (DTAA)

A Double Taxation Avoidance Agreement (DTAA) is a pact signed by two nations that encourages capital investment, trade in goods and services, and other economic activities between the two nations by preventing International Double Taxation. This suggests that there are agreed-upon tax rates and jurisdictions for certain types of income that originate in one country and are received by tax residents of another country.

The issue of Double Taxation is connected to the taxation of international income. Depending on the types of businesses/holdings that citizens of one country have in another, the DTAA may either cover all types of income or may focus on a particular type of income. In accordance with the Double Taxation Avoidance Agreements (DTAA), the following categories are covered:

  • Salary
  • Capital Gains
  • Services
  • Property
  • Savings
  • Fixed Deposit Accounts

The disparity in tax collection on personal income worldwide is the root cause of the need for DTAA. If a person wants to run a business in another nation, he or she may have to pay income taxes in both nations—the one where the income is earned and the one where the person is a citizen or resides. For instance, if you leave income sources in India and move to a different country, such as interest from deposits, both India and the country where you are currently residing will charge you interest based on your total combined earnings. You might end up paying twice as much tax on the same income in such a situation. The DTAA helps taxpayers in this situation.

DTAA Duration and Rates

These agreements usually remain in effect forever unless and until either party formally terminates them. Furthermore, depending on the specifics that were agreed upon by both parties, the DTAA rates and regulations change from one country to the next. TDS rates on interest earned range from 7.50% to 15%, but are typically 10% or 15% in most nations.

List of Countries Having Double Taxation Avoidance Agreement Treaty with India

DTAA treaties with India currently exist with a total of 85 nations. The following nations and India have a Double Taxation Avoidance Agreement:

 

NAME OF COUNTRY

TDS RATES ON INTEREST

1.

Armenia

10%

2.

Australia

15%

3.

Austria

10%

4.

Bangladesh

10%

5.

Belarus

10%

6.

Belgium

15%

7.

Botswana

10%

8.

Brazil

15%

9.

Bulgaria

15%

10.

Canada

15%

11.

China

15%

12.

Cyprus

10%

13.

Czech Republic

10%

14.

Denmark

15%

15.

Egypt

10%

16.

Estonia

10%

17.

Ethiopia

10%

18.

Finland

10%

19.

France

10%

20.

Georgia

10%

21.

Germany

10%

22.

Greece

According to the Agreement

23.

Hashemite Kingdom of Jordan

10%

24.

Hungary

10%

25.

Iceland

10%

26.

Indonesia

10%

27.

Ireland

10%

28.

Israel

10%

29.

Italy

15%

30.

Japan

10%

31.

Kazakhstan

10%

32.

Kenya

15%

33.

South Korea

15%

34.

Kuwait

10%

35.

Kyrgyz Republic

10%

36.

Libya

According to the Agreement

37.

Lithuania

10%

38.

Luxembourg

10%

39.

Malaysia

10%

40.

Malta

10%

41.

Mauritius

7.50-10%

42.

Mongolia

15%

43.

Montenegro

10%

44.

Morocco

10%

45.

Mozambique

10%

46.

Myanmar

10%

47.

Namibia

10%

48.

Nepal

15%

49.

Netherlands

10%

50.

New Zealand

10%

51.

Norway

15%

52.

Oman

10%

53.

Philippines

15%

54.

Poland

15%

55.

Portuguese Republic

10%

56.

Qatar

10%

57.

Romania

15%

58.

Russia

10%

59.

Saudi Arabia

10%

60.

Serbia

10%

61.

Singapore

15%

62.

Slovenia

10%

63.

South Africa

10%

64.

Spain

15%

65.

Sri Lanka

10%

66.

Sudan

10%

67.

Sweden

10%

68.

Swiss Confederation

10%

69.

Syrian Arab Republic

7.50%

70.

Tajikistan

10%

71.

Tanzania

12.50%

72.

Thailand

25%

73.

Trinidad and Tobago

10%

74.

Turkey

15%

75.

Turkmenistan

10%

76.

UAE

12.50%

77.

UAR (Egypt)

10%

78.

Uganda

10%

79.

UK

15%

80.

Ukraine

10%

81.

United Mexican States

10%

82.

USA

15%

83.

Uzbekistan

15%

84.

Vietnam

10%

85.

Zambia

10%

Benefits of DTAA

  1. Double Taxation relief is one of the goals of a Double Tax Avoidance Agreement, which aims to promote a nation as an appealing investment location.
  1. This Double Taxation relief is made possible by offering credit for foreign taxes paid or by exempting income earned abroad from taxation in the country where the taxpayer resides.
  1. Many taxpayers find the Double Taxation Avoidance Agreement to be advantageous. The main goal of this agreement is to prevent and avoid implementing double taxation on the same income. This is very beneficial for business people and individuals who live in one country but have set up offices, shipping companies, or other types of businesses in another country.
  1. The DTAA not only avoids Double Taxation but also offers Tax Exemptions. The Double Taxation Avoidance Agreement specifies the number of terms and circumstances under which people may apply for a tax exemption. The capital gains taxes are replaced by this exemption, which is advantageous to taxpayers and businesspeople in terms of trading and business.
  1. Additionally, it offers a tax credit in the country where the revenue is generated, or the source country, preventing the payment of the same tax twice. Based on these advantages and advantages, it is necessary to sign the Double Taxation Avoidance Agreement in order to properly transfer revenue and establish a business abroad without the hassle of having to pay taxes on the same profit twice.
  1. Another benefit is that DTAAs provide legal certainty because they contain specific guidelines for taxing international income. Due to the certainty of the tax situation, this promotes foreign investment in developing nations.
  1. Anti-abusive clauses are included in DTAAs as well to make sure that only legitimate citizens of the two countries benefit from them.

List of Paperwork Needed to Claim DTAA Advantages

NRIs must submit the aforementioned paperwork in order to benefit from the DTAA's provisions and benefits. To be qualified to receive benefits under this DTAA agreement, an individual must provide the Tax Residency Certificate to a deductor in addition to the below-mentioned records. These documents are listed below:

  • Indemnity/Self-Declaration Form
  • Tax Residency Certificate (In order to apply for a Tax Residency Certificate under sections 90A and 90 of the Income Tax Act, you must submit Form 10FA. The certificate will be issued under Form 10FB following the application's successful verification and processing.)
  • PAN Card Copy
  • Self-Attested Visa
  • Passport Xerox
  • PIO Proof Copy 

Conclusion

DTAA This blog sums up some key details about the Double Taxation Avoidance Agreement. By requesting this benefit, one can avoid paying two taxes. People should be aware, though, that a nation may deduct tax at source and document tax paid using a foreign tax credit document.

The rules for avoiding double taxation thus differ from one country to another. To determine the TDS rate, it is crucial to comprehend what the DTAA acronym stands for and to read the terms between the relevant nations. We genuinely hope that this blog helps you in getting a better understanding of the concept of Double Taxation Avoidance Agreement.

Do you like this edition?
LEAVE A FEEDBACK
ⓒ 2016-2023 Groww. All rights reserved, Built with in India
MOST POPULAR ON GROWWVERSION - 3.6.9
STOCK MARKET INDICES:  S&P BSE SENSEX |  S&P BSE 100 |  NIFTY 100 |  NIFTY 50 |  NIFTY MIDCAP 100 |  NIFTY BANK |  NIFTY NEXT 50
MUTUAL FUNDS COMPANIES:  ICICI PRUDENTIAL |  HDFC |  NIPPON INDIA |  ADITYA BIRLA SUN LIFE |  SBI |  UTI |  FRANKLIN TEMPLETON |  KOTAK MAHINDRA |  IDFC |  DSP |  AXIS |  TATA |  L&T |  SUNDARAM |  PGIM |  INVESCO |  LIC |  JM FINANCIAL |  BARODA PIONEER |  CANARA ROBECO |  HSBC |  IDBI |  INDIABULLS |  MOTILAL OSWAL |  BNP PARIBAS |  MIRAE ASSET |  PRINCIPAL |  BOI AXA |  UNION KBC |  TAURUS |  EDELWEISS |  NAVI |  MAHINDRA |  QUANTUM |  PPFAS |  IIFL |  Quant |  SHRIRAM |  SAHARA |  ITI