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Budget 2021 update: FM proposes to notify rules for removing hardship for NRI due to double taxation.
NRIs can avoid paying double tax under the Double Tax Avoidance Agreement. 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:
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 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.

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.
  Get a ClearTax Expert to help you avail the benefits of DTAA in your country of residence.

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