DTAA: Objectives, Benefits, DTAA Rates & The Countries Associated
Double Taxation Avoidance Agreement is the full form of DTAA. It is an agreement between two or more countries which enables a taxpayer to avoid paying taxes twice for the same income in the source country and the residence country.
Suppose an individual has left India to reside in another country. However, he/she has left behind deposits with regular interest payments arising from them. Now his/her interest income will be considered in both the countries for calculation of tax liability. In such a scenario, an individual may end up paying taxes on the interest income twice (in India and another country). DTAA becomes helpful in these cases.
What are the Objectives of DTAA?
Here are some objectives of DTAA:
- The double Taxation Avoidance Agreement was designed to curb tax evasion around the world.
- The most important objective is to enable greater movement of capital and persons between countries.
- It reduces hassles for taxpayers by making tax payments more transparent and simplified.
- It will allow the transfer of technology between partner countries, enabling them to monitor financial activities more efficiently.
- DTAA helps in attracting greater FDI by doing away with dual taxation.
- One can get greater clarity regarding the taxation of certain cross border transactions.
Benefits of DTAA
The benefits associated with DTAA are as follows:
- Avoid dual taxation
It helps individuals avoid paying taxes on the same income twice. It will help countries to attract FDI as capital can freely move without the possibility of dual taxation.
- Lower tax rates
As per provisions of DTAA, taxpayers can take advantage of lower or concessional rates of tax in some situations. The interest, royalty, and other income that they earn in India are subject to lower TDS deductions. For example, the interest earned by NRIs on bank deposits is subject to TDS at the rate of 10-15%. However, under DTAA, tax rates can be as low as 10-15%.
- Tax credits
DTAA can also provide for tax credits. These credits can be available either in the home country or the source country. Individuals can claim tax credits and hence can avoid paying taxes twice.
- Tax exemption
India’s DTAA with several countries like Singapore, Mauritius, Cyprus, etc., allows exemption from capital gains tax. It is a boon for investors as they can minimise their tax liability and increase investment.
Types of Income under DTAA
The following earnings of NRIs come under DTAA:
- Income earned for providing any service in India
- Salary received by them in India
- Any income from a house or real estate property located in India
- Capital gains arising from the sale or transfer of capital assets in India
- Interest from time deposits in India
- The interest income earned from savings bank accounts located or situated in India.
Also Read: Double Taxation: Definition, Types and Tips To Avoid It
What Are the Methods for Claiming DTAA Benefits?
Individuals can claim benefits under DTAA by following these methods:
- Tax credit: Taxpayers can claim tax credit in their country of residence.
- Tax exemption: One may claim exemptions in the country of residence or the source country.
Also Read: Residential Status for Income Tax in India: Meaning & Its Importance
DTAA Rates
India has signed DTAA with more than 80 countries. There is a specific rate at which the IT Department deducts TDS on income paid to residents of other countries. TDS rates are different for each country and depend on provisions mentioned in each DTAA. The DTAA income tax rates vary between 7.5 and 15%.
List of Countries Having DTAA with India
Here are some countries having DTAA with India:
| Sl. No. | Country | TDS rate |
| 1 | Austria | 10% |
| 2 | Australia | 15% |
| 3 | Armenia | 10% |
| 4 | Belgium | 15% |
| 5 | Belarus | 10% |
| 6 | Bangladesh | 10% |
| 7 | Botswana | 10% |
| 8 | Brazil | 15% |
| 9 | China | 15% |
| 10 | Canada | 15% |
| 11 | Cyprus | 10% |
| 12 | Egypt | 10% |
| 13 | Estonia | 10% |
| 14 | France | 10% |
| 15 | Georgia | 10% |
| 16 | Germany | 10% |
| 17 | Hungary | 10% |
| 18 | Hashemite Kingdom of Jordan | 10% |
| 19 | Israel | 10% |
| 20 | Indonesia | 10% |
| 21 | Italy | 15% |
| 22 | Japan | 10% |
| 23 | Kenya | 15% |
| 24 | South Korea | 15% |
| 25 | Kuwait | 10% |
| 26 | Luxemburg | 10% |
| 27 | Mauritius | 7.5%-10% |
| 28 | Malaysia | 10% |
| 29 | Mongolia | 15% |
| 30 | Nepal | 15% |
| 31 | Netherlands | 10% |
| 32 | Philippines | 15% |
| 33 | Poland | 15% |
| 34 | Russia | 10% |
| 35 | Singapore | 15% |
| 36 | Saudi Arabia | 10% |
| 37 | Spain | 15% |
| 38 | Swiss Confederation | 10% |
| 39 | UAE | 12.5% |
| 40 | UK | 15% |
| 41 | Mexico | 10% |
| 42 | USA | 15% |
Final Word
DTAA is a mechanism helping taxpayers to avoid dual taxation. However, individuals must thoroughly go through each DTAA and their provisions before applying for tax credits or tax exemptions.
FAQs on DTAA
Ans: NRIs must take into consideration whether their resident country has a DTAA with India. They have to file Form 15, self-declaration, and tax residency certificate to claim benefits under DTAA.
Ans: Whenever India has a DTAA with another country, then the taxpayer can claim tax relief u/s 90 of the Income Tax Act. On the other hand, when India has DTAA with specific associations, then one can apply for tax relief or exemptions u/s 90A of the Income Tax Act.
Ans: Tax residency certificate is a document that the IT Department issues to Residents of India who earn income from nations with which India has DTAA. This document is crucial as it is used to claim benefits under DTAA.
Ans: DTAA has four models:
OECD model tax convention – This model is based on the residence principle.
UN model double taxation convention – This model is a combination of the source and residence principles. However, the key emphasis is given to the source principle.
US model income tax convention – Any country entering into DTAA with the USA must follow this model.
Andean community income and capital tax convention – South American member countries like Bolivia, Peru, Chile, Ecuador, and Columbia follow this model.
Ans: There is no time limit for DTAA between member countries. It can continue for an indefinite period of time unless revoked or terminated by either country.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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