The DTAA, which has been signed by India with various countries, sets a certain rate at which taxes must be deducted from income paid to residents of that country. This means that when NRIs earn income in India, the TDS will apply according to the rates set out in the double taxation treaty with that country. The double taxation treaty is a convention signed by two countries. The agreement is signed to make a country an attractive destination and to allow NRIs to be exempt from multiple tax payments. DTAA does not mean that the NRI can completely avoid taxes, but it does mean that the NRI can avoid paying higher taxes in both countries. DTAA allows an NRI to reduce its tax impact on income earned in India. DTAA also reduces cases of tax evasion. The intention behind a double taxation treaty is to make a country appear as an attractive investment destination by alleviating the burden of double taxation. This form of relief is granted by exempting from tax income earned abroad in the State of residence or by offering credits to the extent that the taxes were paid abroad.
So what are the benefits of such an agreement? Hello @rkarora1967, Since he is a resident, the person is obliged to pay taxes on his total income. In addition, he will receive the advantage of India – US DTAA, in which he can get the benefit of income tax paid in the United States, either directly or by deduction. However, such a deduction is limited to income tax on that income in India. Under the double taxation treaty, NRIs do not have to pay twice taxes on the following income they earn: For NIRs working in other countries, the DBAA (Double Taxation Avoidance Agreement) helps avoid double taxes on income earned both in their country of residence and in India. Its main objective is that taxpayers in these countries can avoid taxing the same income twice. India has 85 active agreements. The fundamental objective of the DBAA is to promote and promote economic trade and investment between two countries by avoiding double taxation. You can view India`s DBAA with other countries on the Income Tax Department`s website via this Government Notification link. According to the 2013 Finance Act, a person is not entitled to a relief benefit under the double taxation convention unless he presents a certificate of tax residence to the person entitled to deduct.
To obtain a certificate of tax residence, an application for Form 10FA (Application for a Certificate of Residence for the Purposes of an Agreement under Sections 90 and 90A of the Income Tax Act, 1961) must be submitted to the tax authorities. Once the application has been successfully processed, the certificate will be issued on Form 10FB. For example, Mr. Arjun is an Indian residing in the United Kingdom. He has invested in India, with which he generates returns. Now this income can be taxable in India and the UK. But because of the DTAA, Mr. Arjun is not taxed for the same income in both countries.
General rule: Dividends paid by a company resident in a Contracting State to a resident of the other Contracting State may be taxed in that other State. For example, if a U.S. company pays a dividend to a shareholder based in India, the dividend income is taxable in India. In addition, the United States (companies that pay the dividend) also has the right to tax the dividend in its state. However, if the beneficial shareholder is resident in India, i.e. a resident of the other Contracting State, must not exceed the tax thus levied: let us now assume that the agreement stipulates that both India and the United Kingdom will levy taxes on this income. In this case, Mr. Arjun will receive a credit note of the taxes he paid in the UK, which will be deducted when paying taxes in India. It will therefore end up paying taxes in both countries, but at lower interest rates.
The objective of these tax treaties is to develop a fair and equitable system for sharing the right to tax different types of income between countries of origin and „countries of residence“. If an Indian resident earns income and is taxed in the United States, India allows the amount of income tax paid in the United States as a deduction. However, this deduction may not exceed the Indian tax paid on the foreign income earned. According to the agreement, the income applies as follows: DTAA can be claimed if the same income is taxed in two countries. As no tax is levied in his current country, he will pay taxes on the interest and dividend income he receives in India. The profits of the companies generated will therefore be taxable in India. He must report the total income and then claim a credit for taxes paid in the United States under the DTAA. So, after all, its income is taxed by the US parent company after deductions in India. Continuation of the example, since Mr. Arjun is covered by the DTAA. And the deal states that the UK will exclude all its income from investments made in India, so it will only have to pay taxes in India and not in the UK. Only a particular country will charge for its income.
Foreign or non-resident companies operating in India are subject to withholding tax on their income – dividends, interest, royalties or fees for technical services, as required by the Income Tax Act. . . .