Double Tax Avoidance Agreement (DTAA) Between India and Australia

For Indian citizens, a significant concern while earning foreign income is double taxation. Since income tax is levied on the source of income, foreign currencies are no exception; but, to avoid double taxation, the Indian Government has signed an agreement with almost 100 different countries all over the world. This agreement is there to protect Indian citizens and Non-Residents (NRIs) from being taxed twice on the same income.

The Double Tax Avoidance Agreement (DTAA) between India and Australia was signed to ensure that all Non-Resident Indians and Residents pay taxes on their income only once. Under this agreement, various Articles explain in detail how different tax segments are applicable based on the types of income. This agreement can be extremely helpful if you earn in Australian currency. 

What is DTAA Between India and Australia?

DTAA between Australia and India is an agreement to counter the double taxation issue. Australia signed this agreement on the 30th day of December 1991. The articles under this agreement apply to all types of personal and corporate income sources. Different types of taxes and interest rates are mentioned in this agreement. Both countries are responsible for maintaining the rules and regulations under DTAA.

Although this agreement applies to the geographical region of Australia, the following regions are excluded according to Article 3 of the agreement:

• The Cocos (Keeling) Islands Territory
• The Christmas Island Territory
• the Coral Sea Islands Territory
• The Norfolk Island Territory 
• The Heard Island and McDonald Islands Territory
• The Ashmore and Cartier Islands Territory

Although DTAA is there, there is the presence of an anomaly; the ‘Deemed Source’ rule of Australia makes all earnings by Indian citizens taxable if they are from an Australian source. Keeping these contradictions in mind, recently an amendment has been proposed by India to Australia with regard to their domestic taxation laws to ensure that NRIs are not taxed twice. 

The Australian parliament agreed to the proposed amendment in 2022. This amendment is related to the earnings from the offshore services provided to the Australian citizens by the Indian citizens, which were taxable by the Australian domestic income tax laws. 

Significance of DTAA For India and Australia 

Since paying taxes is mandatory in most nations, double taxation is an inevitable issue for residents who earn from foreign countries. Both India and Australia have agreed to set a set of tax rules to make sure that Indian citizens are paying their income taxes fairly. Here is how the Indian Australia DTAA is significant:

• Double Tax Avoidance Agreement (DTAA) between India and Australia helps Indian NRIs to work in Australia without worrying about paying double taxes. 
• Since income from various sources is also included in this agreement, it creates clarity for the taxpayers. The DTAA mentions which income source will be taxed at which rate and it makes it easier for taxpayers to understand how much they need to pay.
• The DTAA allows both countries to apply a bilateral relief system on taxes. With this bilateral system, taxpayers can claim tax relief via tax deduction, credit or exemption methods. All of these methods are applicable based on the income source and types.
• DTAA between Australia and India helps taxpayers to be sure about their income tax payments and be more prompt with their tax payments. Thus, it helps both countries to receive fair taxes on time by encouraging taxpayers. 
• NRIs employed in IT firms based in Australia were previously taxed under Australian tax law because they were not included in the DTAA. In 2022, Australia expanded their laws and solved this issue by offering tax relief to them as well. Such initiatives are great for the international relations of both countries and also for the global workforce, helping both countries to be more cooperative.

Taxes Covered Under DTAA

Under Double Taxation Avoidance Agreement between India and Australia, an array of taxes have been covered:

Taxes that are covered in Australia are:

• General income tax 
• Resource rent Taxes on offshore incomes, 
• Petroleum taxes, 
• Other taxes under the federal law of the Commonwealth of Australia 

 Taxes which are applicable in India are:

• The income tax including cess and  all surcharges, 
• Company profits are taxed under surtaxes

Apart from these, other taxes which are substantially similar to these types of taxes also fall under the India Australia DTAA.

Taxation of various income under India Australia DTAA

As per Articles 9, 10 and 11 of the agreement, the dividend and interest may be taxed in the country where it arises provided the tax rate on such income shall not exceed 15%. In line with tax rates, the TDS rates shall not exceed the said tax rate.

Royalties, as Article 12 defines them, are also eligible for reduced tax rate of 15% . Indian Australia Double Tax Avoidance Agreement assures the taxpayers that they won’t be taxed more than 15% of the gross income from dividends, royalties or other income sources. 

Taxation on Capital Gains under DTAA

Capital gains are also taxed under Indian Australia DTAA as per Article 13 of the agreement. Rules applicable to any kind of capital gains from any movable or immovable properties are as follows: 

• Income or gains derived by a resident of one of the Contracting States from the alienation of real property situated in the other Contracting State may be taxed in the other State.
• Capital gains from the alienation of business property in one Contracting state whose enterprise is based in the other Contracting State will be taxed in the other Contracting state. 
• Gains derived from ships or aircraft-based operations in international traffic will be taxable only in the Contracting State where the enterprise is based. 
• Capital gains from the alienation of shares in a company situated in one of the Contracting States will be taxed in that State.

Taxation on Income from Immovable property

Australia uses the term “Real Property” where in India the same is called as immovable property. The Real Property includes a lease land, right receive consideration for extraction of mineral or other deposits, oil or gas well or such other minerals

DTAA for income by way of letting out of an immovable property shall be taxed in the country where such property is located.

Final Word

India Australia DTAA is extremely important due to the regulations it has laid out to control unfair taxation of income of Non-Resident Indians (NRIs) and Indians earning in Australia. Although there are some disputes because of contradictory domestic and international laws, DTAA manages to smoothly run the global workforce by ensuring one-time taxation on international earnings.

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