Double Tax Avoidance Agreement (DTAA) Between India and Germany

Non-resident Indians (NRIs) living in Germany often have this query if they have to pay income taxes twice as per the German tax slab and Indian tax slab. However, the Indian Government has arranged an agreement with a almost 100 countries all over the world to establish a fair and stable taxation system for all.

Double Tax Avoidance Agreement (DTAA) between India and Germany is an initiative by the Indian Government to ensure NRIs living in Germany are safe from being taxed twice. This agreement allows various types of tax relief, deductions and credits to ensure that people who are earning in German currency pay tax on their income only once.

What is DTAA Between India and Germany?

The India - Germany DTAA came into force on 26 October 1996, replacing the earlier agreements. Under this agreement, the rules stated in the articles apply to residents of the 'Contracting States’, i.e., India and Germany. 

The DTAA between India and Germany has 29 articles that discuss the regulations on how double taxation can be avoided. This agreement also notes to whom the taxation system applies and which types of earnings are exceptions. This agreement helps taxpayers understand how they can claim income tax returns or exemptions on their foreign earnings. 

Significance of DTAA for India and Germany 

The Indian government created this agreement to ensure that Indian citizens who are working in the global workforce can pay taxes fairly. India Germany DTAA is extremely significant for both of the countries due to various reasons:

• Both countries are eligible for the benefits of this agreement. The DTAA helps countries to be fair to their citizens regarding the taxation of income. 
• Since this agreement is there to make the taxation system fair to all, it encourages taxpayers to pay taxes on time and be more consistent. 
• The DTAA implements a bilateral relief system on income tax rates. Thus, the system offers tax relief through deduction, exemption or tax credit methods.
• Due to this agreement, residents of both countries can freely engage with each other in professional fields without thinking about the consequences of double taxation. 
• Section 90A applies to taxpayers who are willing to claim the benefits of the DTAA between India and Germany. This section implements the bilateral relief system for taxpayers who are Non-Resident Indians (NRIs) earning in German currency. 
• Students living in Germany also fall under the DTAA as they can enjoy tax benefits on their earnings under Article 20 of India Germany DTAA.
• Tax relief applies to all income sources in both countries mentioned within the agreement. Thus, there are fewer chances of economic conflict.

Taxes Covered Under DTAA

Under the Double Tax Avoidance Agreement (DTAA) between India and Germany, various sources of income have been considered for tax relief. These include income which falls under the tax slabs of either India, Germany or both countries. Here are the types of taxes that the India-Germany DTAA covers:

Here is a list of applied taxes in the Federal Republic of Germany (i.e. ‘German Tax’): 

• Income tax also known as the Einkommensteuer, 
• Capital tax also known as the Vermogensteuer,  
• Tax for trading also known as the Gewerbesteuer,
• Corporation tax also known as the Korperschaftsteuer,  

These are the taxes applicable to the Republic of India (i.e. ‘Indian Tax’):

• Surcharge taxes under the income-tax slabs of India which includes darauf entfallender Zusatzsteuern, Einkommensteuer, and Vermögensteuer (tax on wealth).

Except these, all other taxes that fall under the same or similar categories come under DTAA. 

India Germany DTAA TDS Rates

The maximum applicable TDS rate on dividend income earned in both contracting States is 10%. Both India and Germany have the right to levy taxes on interest income as well. Under the India-Germany DTAA, the TDS rate on such income cannot exceed 10%. 

Royalty also falls under this agreement and the tax deduction rate for the royalty is the same as other rates which is 10%. TDS on fees for technical services interest should also not exceed 10% as per the agreement. 

Taxation on Capital Gains Under DTAA

Taxation rules for capital gains under Article 13 of the Double Tax Avoidance Agreement (DTAA) between India and Germany are as follows:

• Any capital gain from immovable property in the Contracting States will be taxed by the said state only.
• Any capital gain related to shipping and aircraft is taxed only in the state where the company’s managerial office is situated.
• In cases of movable properties, the Contracting State with a permanent base is responsible for collecting the taxes.

If there is an exception in any of these cases, the Contracting State of the taxpayer, where they are resident, will levy the taxes. 

Final Word

Double Tax Avoidance Agreement (DTAA) between India and Germany is a useful tool for NRIs or anyone who has a foreign source of income. This agreement helps to maintain fairness and equality in both countries when it comes to the payment of taxes by residents. This also creates uniformity in income tax structure that helps to avoid double tax applications. 

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