NRIs can avoid paying double tax under the Double Tax Avoidance Agreement
It is very often the case that non-resident Indians (NRI) live abroad but also ean an 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. However, to avoid doing so, there is something called the Double Tax Avoidance Agreement (DTAA) that NRIs can benefit from.
Understanding DTAA
The Double Tax Avoidance Agreement is a treaty that is signed by two countries. The agreement is signed to make a country an attractive destination as well as to enable NRIs to take 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
The DTAA carried out by India with different countries fixes a specific rate at which TDS 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:
| Country | DTAA TDS rate |
| United States of America | 15% |
| United Kingdom | 15% |
| Canada | 15% |
| Australia | 15% |
| Germany | 10% |
| South Africa | 10% |
| New Zealand | 10% |
| Singapore | 15% |
| Mauritius | 7.5% to 10% |
| Malaysia | 10% |
| UAE | 12.5% |
| Qatar | 10% |
| Oman | 10% |
| Thailand | 25% |
| Sri Lanka | 10% |
| Russia | 10% |
| Kenya | 10% |
Income types under DTAA
Under the Double Tax Avoidance Agreement, NRIs don’t have to pay tax two times 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
When income from these sources is taxable in the NRI’s country of residence as well, they can avoid paying taxes on it 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
Get a ClearTax Expert to help you avail the benefits of DTAA in your country of residence.