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How NRIs can Claim Benefits Under DTAA

Updated on :  

08 min read.

NRIs can avoid paying double tax as per the Double Tax Avoidance Agreement (DTAA). Usually, Non-Resident Indians (NRI) live abroad, but earn income in India. In such cases, it is possible that the income earned in India would attract tax in India as well as in the country of the NRI’s residence. This means that they would have to pay tax twice on the same income. As a measure to avoid this, the Double Tax Avoidance Agreement (DTAA) was amended. 

Understanding DTAA

The Double Tax Avoidance Agreement is a treaty signed by two countries. The agreement is signed to make a country an attractive destination as well as to enable NRIs to get relief from having to pay taxes multiple times. 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 does allow an NRI to cut down on their tax implications on the income earned in India. DTAA also reduces the instances of tax evasion.

DTAA Rates 

DTAA, signed by India with different countries, fixes a specific rate at which tax has to be deducted on income paid to residents of that country. This means that when NRIs earn an income in India, the TDS applicable would be according to the rates set in the Double Tax Avoidance Agreement with that country.

Countries that India has a DTAA with
India has signed a Double Tax Avoidance Agreement with most major nations where Indians reside. Some of these countries are:

CountryDTAA TDS rate
United States of America15%
United Kingdom15%
Canada15%
Australia15%
Germany10%
South Africa10%
New Zealand10%
Singapore15%
Mauritius7.5% to 10%
Malaysia10%
UAE12.5%
Qatar10%
Oman10%
Thailand25%
Sri Lanka10%
Russia10%
Kenya10%

Income types under DTAA

Under the Double Tax Avoidance Agreement, NRIs don’t have to pay tax twice on the following income earned from:

  • Services provided in India.
  • Salary received in India.
  • House property located in India.
  • Capital gains on transfer of assets in India.
  • Fixed deposits in India.
  • Savings bank account in India.

If income from these sources is taxable in the NRI’s country of residence, they can avoid paying taxes on it in India by availing the benefits of DTAA.

DTAA methods

The benefit of DTAA can be used by two methods:

  • Tax credit: Tax relief under this method can be claimed in the country of residence.
  • Exemption: Tax relief under this method can be claimed in any one of the two countries.

Section 89A introduced in Budget 2021

In Budget 2021, FM proposes to notify rules for removing hardship for NRI due to double taxation on money accrued in foreign retirement accounts. Therefore a new Section 89A was inserted in the Income Tax Act to provide relief to NRI’s from taxation of income from retirement benefits account maintained with notified countries.

This provision applies to the ‘specified persons’, i.e. the person who is resident in India opened a notified account in the country (notified by the Central Government) while being non-resident in India and resident in that country.
Notified account means account opened for retirement benefits by a specified person in the notified country, and income from such account is not taxable on an accrual basis but taxable by such country on a receipt basis.
The new provision states that such income will be taxed in such manner and in the year as may be prescribed.

Frequently Asked Questions

What are the incomes on which an NRI can claim tax credit/tax exemption for income earned in India in the resident country?

The income on which a NRI can claim tax exemption/credit will be mentioned in the DTTA with the resident country. The provisions of DTAA are not the same for all countries.

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