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Understanding DTAA: How NRIs Can Avoid Double Taxation In India

Double Tax Avoidance Agreements (DTAA) can help optimise tax obligations and ensure financial efficiency.

May 13, 2024
May 13, 2024
Double Taxation Avoidance Agreement (DTAA)

Double Taxation Avoidance Agreement (DTAA)

A recent survey by SBNRI, an investment platform for non-resident Indians (NRIs) and overseas citizens of India (OCIs), revealed that around 14.11 per cent of NRIs from Australia, 13.10 per cent from the UK, and 8.06 per cent from the US consider double taxation as a significant challenge when filing tax returns in India.

Also Read: Mother’s Day 2024: Give Your Mother The Gift Of Financial Security


What Is Double Taxation?

Double taxation occurs when the same income is taxed twice, once in the country where it is earned (source country) and again in the country where the taxpayer is a resident (home or resident country).

Many NRIs might be unknowingly subject to double taxation on their income, but provisions like DTAA offer exemptions under specific conditions and eligibility criteria.


Understanding DTAA

DTAA, or Double Tax Avoidance Agreement, is a treaty signed between two countries to prevent NRIs’ income from being taxed twice: once in the resident country and again in the country where the income is earned.

NRIs who spend a minimum of 182 days abroad in a year are eligible to apply for tax exemption in their country of residence if they have already paid tax in India.

India has signed DTAA agreements with 88 countries, of which 85 are currently in force. These agreements cover various categories such as services, salary, property, capital gains, and savings/fixed deposit accounts. They specify guidelines on which country has the primary right to impose taxes on particular types of income.

Income Types Exempt from Taxation

As per the Double Tax Avoidance Agreement, NRIs are not required to pay tax on the following types of income:

– Income from services provided in India

– Salary received in India

– Income from residential property located in India

– Profits from the transfer of assets in India

– Interest earned on fixed deposits and savings bank accounts in India

However, there might be differences in tax rates. In such cases, the taxpayer is required to pay the remaining taxes in their country of residence. For instance, if the tax rate in Singapore is 20 per cent and the same income is taxed at 15 per cent in India under the DTAA with Singapore, the taxpayer would pay the remaining 5 per cent tax in Singapore.

Income Tax Slab Rates:
Income Tax Slab Tax Rate
Up to Rs 2.5 Lakh Nil
Rs 2.5 Lakh to Rs 5 Lakh 5%
Rs 5 Lakh to Rs 7.5 Lakh 10%
Rs 7.5 Lakh to 10 Rs Lakh 15%
Rs 10 Lakh to Rs 12.5 Lakh 20%
Rs 12.5 Lakh to Rs 15 Lakh 25%
Rs 15 Lakh and above 30%
Source: SBNRI Data

Also Read: These Two Banks Revised FD Rates This Week: Know What Seniors Can Earn

Documents Required For DTAA Benefits

To avail of the benefits under DTAA, the following documents are required:

– Self-declaration cum indemnity format

– Self-attested PAN card copy

– Self-attested visa and passport copy

– PIO proof copy (if applicable)

– Tax Residency Certificate (TRC)

The Double Tax Avoidance Agreement (DTAA) in income tax prevents double taxation by allowing taxpayers to pay tax in only one country. This pact increases income savings, contributes to retirement funds, and attracts businesses. Additionally, it aids in curbing tax evasion by providing relief from double taxation, making the country more attractive for investments.

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