Double Taxation Avoidance Agreements (DTAA)
The Double Tax Avoidance Agreements (DTAA) is essentially bilateral agreements entered into between two countries, in our case, between India and another foreign state. The basic objective is to avoid, taxation of income in both the countries (i.e. Double taxation of same income) and to promote and foster economic trade and investment between the two countries. The advantages of DTAA are as under.
Currently India has comprehensive DTAA or Tax Treaty with 84 other countries.
The advantage of DTAA are as under,
- Lower Withholding Taxes (Tax Deduction at Source)
- Complete Exemption of Income from Taxes
- Underlying Tax Credits
- Tax Sparing Credits
The Provisions of DTAA override the general provisions of taxing statue of a particular country. It is now well settled that in India the provisions of the DTAA override the provisions of the domestic statute. Moreover, with the insertion of Sec.90 (2) in the Indian Income Tax Act, it is clear that assessee has an option of choosing to be governed either by the provisions of particular DTAA or the provisions of the Income Tax Act, whichever are more beneficial.
The Non Resident can certainly take the benefit of the provisions of DTAA entered into between India and the country, in which he resides, more particularly in respect of Interest Income from NRO account, Government securities, Loans, Fixed Deposits with Companies and dividends etc. This is explained below: –
For the Assessment Year 2012-2013,
Withholding Tax Rate (TDS) under the Indian Income Tax for Interest Income – 33.99% whereas,
Rate of Tax prescribed in the DTAA with the country where Non Resident resides e.g. Singapore – 15%
Therefore, chargeable rate will be 15 % (Lower of the Two)
Every Non Resident should choose lower of the tax rate prescribed in DTAA with the country where he resides and the tax rate prescribed under the Indian tax laws.
How to avail benefits under the DTAA
Any NRI can avail benefits under the DTAA by timely submission of documents listed below to the deductor.
- Tax Residency Certificate (TRC)
- Self-attested copy of PAN Card
- Self-declaration cum indemnity format (formats of such letter are availabe in the bank website)
- Self-attested copy of Passport and Visa
- Copy of PIO Proof (applicable if the passport has been renewed during the Financial Year)
Mandatory details to be included in the TRC
- Name of the assessee
- Status (individual, company, firm etc.) of the assessee
- Nationality (in case of individual)
- Country or specified territory of incorporation or registration (in case of others)
- Assessee’s tax identification number in the country or specified territory of residence or in case no such number, then a unique number on the basis of which the person is identified by the Government of the country or the specified territory
- Residential status for the purposes of tax
- Period for which the certificate is applicable
- Address of the applicant for the period for which the certificate is applicable
The certificate containing above details should be duly verified by the Government of the country or the specified territory of which the NRI claims to be a resident for the purposes of tax.
How to obtain the TRC
You can approach the tax/government authorities of the overseas where you reside to obtain the TRC. You may also check with your Chartered Accountant / Tax Consultant abroad on the procedure to obtain the same. Remember! No other document in lieu of the TRC is considered for availing the benefits under DTAA.
Now the question may arise, whether you need to submit these documents every year to avail benefits under the DTAA? Answer is Yes! DTAA benefit is extended on an annual basis. Therefore, any NRI is required to provide all the requisite documents every year to continue availing the benefit under DTAA.
Also what happens if one (here NRI) doesn’t submit TRC and other documents to the bank within stipulated timelines? In such case, the bank will have to deduct interest earned on NRO deposits at the presently applicable rate of 33.99%.
Question to All.
You are Indian NRI & now shift to UAE & earn 50 Cr their & transfer that amount to your Indian bank account. Now FD interest rate at India is 9% where as Interest arte at UAE is 1%…& due to DTAA UAE taxes are 0% where as Indian taxes are 33.99%… so By doing DTAA those people get Interest @9% & pay taxes @ 0 %….