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.
Here are some objectives of DTAA:
The benefits associated with DTAA are as follows:
The following earnings of NRIs come under DTAA:
Individuals can claim benefits under DTAA by following these methods:
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%.
Here are some countries having DTAA with India:
|Sl. No.||Country||TDS rate|
|18||Hashemite Kingdom of Jordan||10%|
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.
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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