A Complete Guide to Double Taxation Avoidance Agreement (DTAA)

DTAA full form is Double Taxation Avoidance Agreement which is a treaty signed between two or more countries to avoid double taxation, that is, prevent the same income from being taxed twice. India, too, has signed a Double Tax Avoidance Agreement (DTAA) with other countries to reduce the tax liabilities on the taxpayers.

This is particularly relevant for individuals who reside in one country but earn income in another. The primary objective of this pact is to promote international trade and investment by offering tax stability and reducing tax barriers.

Suppose you are an Indian resident working in Germany. You earn income in Germany but also have investments in India that generate interest income. Without a DTAA in income tax, your interest income could be taxed in India and again in Germany.

As an NRI, you can claim DTAA for the income from the following sources:

• Salary received

• Income from house property

• Capital Gains when assets are transferred to India

• Payment of services rendered in India

• Interest earned on Fixed Deposit accounts

• Interest earned on Savings account

There are two ways to avail relief under DTAA - bilateral and unilateral tax reliefs.

Bilateral Relief

This is applicable on nations that have signed a Double Taxation Avoidance Agreement (DTAA) with India. Presently, India has entered into DTAA treaties with over 80 countries.

The two common methods used to avoid double taxation under bilateral relief are:

Exemption Method

Under this, one country agrees not to tax certain income if it has already been taxed in another country. For example, if you are an Indian resident and receive dividends from a company in the UK, India may exempt this income from tax because it has already been taxed in the UK.

** Tax Credit Method**

This approach allows you to offset the tax you have paid abroad against your tax liability in your country of residence.

For example, if you are paying tax on employment income in Germany, you can claim a credit for these taxes against your Indian tax liability. This method ensures you are not paying more tax than the maximum rate you would have paid if the income was only taxed in one country.

Unilateral Relief

Unilateral relief is granted when there is no DTAA treaty between India and the country from which the income is derived. To avail of this relief, the following conditions must be met:

• One should be an Indian resident

• The income should be earned outside India

• The earned income should be taxable, and the tax amount should be paid.

• Under this method, the income will face double taxation, but a deduction from the Indian income tax would be applicable. The deduction rate would be determined by the lower of either the average tax rate in India or the average tax rate in the source country.

India-Oman DTAA

The Central Government amended the India-Oman DTAA after signing a Protocol in January 2025. The amendments entered into force on 28 May 2025 will be effective from 1 April 2026. The key highlights of the Protocol are:

• Article 2 (Taxes Covered): The Protocol updates the definition of taxes covered to include Omani tax.
• Article 4 (Resident): The relevant authorities will determine an individual’s residency by mutual agreement if the person is a resident of both contracting states.
• Article 8 (Air Transport): The updated article applies to all entities performing aircraft-related operations, not just specified entities.
• Article 13 (Royalties): The Protocol reduces the withholding tax rate on royalties from 15% to 10%.
• Article 14 (Technical Fees): The updated withholding tax rate on technical fees is 10% instead of 15%.

India-Mauritius DTAA

The India-Mauritius DTAA was updated on 7 March 2024 after the governments signed a Protocol with the following highlights:

• The Preamble now clearly mentions the purpose of the tax treaty, which is to eliminate double taxation and discourage reduced taxation or non-taxation through tax evasion or avoidance.
• The Preamble included a new Article 27B to fulfil the principal purpose test condition for leveraging the benefits of the India-Mauritius tax treaty.

India-Spain DTAA

The amendments to the India-Spain DTAA treaty took effect from the financial year 2023-24.

• The tax rate on royalties and fees for technical services (FTS) was reduced to 10% via the most-favoured nation (MFN) clause and the benefits under the India-Germany DTAA.

The DTAA TDS rates for different countries are as follows:

Keep the following documents handy when claiming DTAA perks:

• An indemnity or self-declaration form that states your eligibility for DTAA benefits.

• Tax Residency Certificate (TRC) issued by the tax authorities of the country of residence. You can apply for this certificate under sections 90 and 90A by furnishing form 10FA.

• A self-attested PAN card copy

• Self-attested Visa

• A self-attested photocopy of the passport

• If applicable, a copy of the proof of Person of Indian Origin (PIO) may be required to establish the individual's heritage and connections to India.

• The double taxation agreement can provide for a reduced rate of tax on dividends, interest, and royalties earned in India. This means lower upfront tax deductions on these types of income, leaving you with more cash in hand.

• Some DTAAs allow for a tax-sparing credit. That means you get a credit for the tax that would have been paid in the foreign country, even if it wasn't actually levied.

• The DTAA ensures that you are not discriminated against based on your nationality in tax matters. You will be treated the same as a resident taxpayer, which can prevent potential biases and unfair treatment.

• The DTAA provides a Mutual Agreement Procedure (MAP) if you face taxation issues. This MAP allows authorities from both countries to resolve disputes. This can save you from lengthy and costly legal battles.

• The DTAA agreement provides certainty and stability in tax matters. You can plan your investments and income streams knowing exactly how they will be taxed without worrying about sudden changes in tax laws.

• By preventing double taxation, the DTAA encourages you to invest in foreign countries and engage in international trade. This can lead to diversified income sources and potentially higher returns.

To apply for Form 10F, you can follow these steps:

Step 1: Access the official e-filing portal using your PAN or the user ID. If you don't have an account, you must register first.

Step 2: Navigate to the 'e-File' menu and select 'Income Tax Forms.'

Step 3: Click on 'File Income Tax Forms'. From the list of available forms, choose Form 10F.

Step 4: Provide the necessary details while filing Form 10F online, and attach a copy of the TRC as a mandatory requirement

Section 89A, introduced in the Finance Act 2021, applies to retirement accounts. Indian residents face double taxation on income from retirement accounts in foreign countries. This section was enacted to address the mismatch in the tax treatment of such income, which was previously taxed on an accrual basis in India, even though it might be taxed on a receipt basis in the foreign country.

As per this section, income accrued in a specified account in a notified country will now be taxed in India only upon withdrawal. This provision is particularly beneficial for NRIs contributing to retirement accounts like the Individual Retirement Account (IRA) or 401(k) in the USA, where periodic accretions are tax-deferred until withdrawal.

The DTAA is a pact between two or more countries to prevent identical earnings from being taxed twice. This international treaty is crucial for taxpayers who earn income across borders, as it ensures they don’t pay tax on the same earnings in both the source and the resident country.

DTAA benefits include reduced tax burdens through tax credits or exemptions, fostering a favourable environment for international trade and investment.

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