Double Taxation Avoidance Agreement – Ahuja & Ahuja Chartered Accountants

Double Taxation Avoidance Agreement (DTAA) is an agreement entered into between two countries to prevent the double taxation of income arising in one country and paid to a resident of the other country. At Ahuja & Ahuja Chartered Accountants, we provide expert advice and assistance in understanding and implementing the provisions of DTAA.

Double taxation has adverse consequences on trade, services, and movement of capital and people. The taxation of the same income by two or more countries would constitute a restrictive weight on the innocent taxpayer. The domestic laws of most of the countries lessen the complexity by affording unilateral remedy in respect of such double-taxed income. However, as this is not a satisfactory and pleasing solution, given the divergence in the rules for determining the sources of income in different countries, the tax treaties try to remove tax obstacles that hinder trade movement and services and movement of capital and persons between the countries concerned.

Our expert and experienced Chartered Accountants having industry experience of over two decades provide comprehensive advisory and assistance in understanding and implementing the provisions of DTAA. We specialize in providing solutions to avoid double taxation between India and other countries.

Reliefs Against Double Taxation

In India, Section 90 and 91 of the Income Tax Act grants relief against double taxation in two ways detailed as under:

Unilateral Relief

Under Section 91 of the said Act, an individual can be relieved from double taxation by the Indian government irrespective of whether there is a DTAA between India and the other country concerned. The unilateral relief to a taxpayer may be provided if:

  • The person or company was a resident of India in the previous financial year.
  • In India and in some other country with which there is no tax treaty, the income should have be taxable.
  • The tax has been paid by the person or company under the statutory laws of the foreign country in question.

Bilateral Relief

Under Section 90, the Indian government protects against double taxation by entering into a DTAA with another country, based on mutually acceptable terms.

Types of DTAA

Comprehensive DTAA:

Comprehensive DTAAs cover almost all types of incomes covered by any model convention. Many a time, a treaty includes wealth tax, gift tax, surtax, etc. too. We specialize in providing comprehensive solutions for DTAAs with countries such as Romania, Russia, Saudi Arabia, Singapore, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Swiss Confederation, Syria, Tanzania, Thailand, Trinidad and Tobago, Turkey, Turkmenistan, UAE, UAR (Egypt), UGANDA, UK, Ukraine, USA, Uzbekistan, Vietnam, and Zambia.

Limited DTAA:

Limited DTAAs are those limited to certain types of incomes only. We provide specialized solutions for DTAAs with countries such as Afghanistan, Bulgaria, Czechoslovakia, Ethiopia, Iran, Kuwait, Lebanon, Oman, Pakistan, People’s Democratic Republic of Yemen, Russian Federation, Saudi Arabia, Switzerland, UAE, Uganda, and Yemen Arab Republic.

If you need assistance in understanding and implementing DTAA provisions, contact Ahuja & Ahuja Chartered Accountants. Our expert and experienced Chartered Accountants provide comprehensive advisory and assistance to avoid double taxation between India and other countries.

Frequently Asked Questions

If my income is being taxed in India as well as abroad, can I claim any relief on account of double taxation?

Yes, relief can be claimed in respect of income charged to tax both in India and abroad. Relief is granted either as per the provisions of the Double Taxation Avoidance Agreement (DTAA) entered into with that country by the Indian Government, or by allowing relief according to section 91? of the Income Tax Act in respect of tax paid in the foreign country.

What areas are covered in the Double Taxation Avoidance Agreements?

A: The DTAAs between countries cover various areas, including the methodology for avoiding double taxation of income, the rate of withholding tax, the procedure for tax deduction and providing tax credits, the process for recovery of tax under the respective laws of the countries to the agreement, the method for exchange of information between the countries to control tax evasion, and the process for investigation of cases of tax evasion or avoidance.

How Can the benefit of DTAA be availed?

A: There are two methods by which the benefit of DTAA can be availed: tax credit and exemption. Under the tax credit method, tax relief can be claimed in the form of a tax credit from the Income Tax chargeable under the Income Tax Act for the Income Tax chargeable under the applicable law in force in the other country. Under the exemption method, tax relief can be claimed in the form of exemption of income on which both Income Tax under the Income Tax Act of India and Income Tax in the other country are chargeable, from the total income of the assessee.

DTAA or domestic tax provisions – which will prevail?

For an assessee to whom a Double Taxation Avoidance Agreement is applicable, i.e., the assessee is a resident of a nation that has DTAA with India, the provisions of the Double Taxation Avoidance Agreement or the provisions of the Income Tax Act, whichever is more beneficial to him, will prevail in India.

What is a Tax Residency Certificate?

A Tax Residency Certificate is a certificate confirming which country an assessee is a resident of. To claim Income Tax relief under the DTAA, the Tax Residency Certificate, issued by the tax authority of the assessee’s resident country, is mandatory to be furnished. Hence, the assessees must obtain a Tax Residency Certificate from the country of their residence to claim relief under the Double Taxation Avoidance Agreement in India.

In addition to the above, it is important to note that the Double Taxation Avoidance Agreement is designed to promote cross-border trade and investment, and to prevent double taxation of income. It also provides a framework for the exchange of information and assistance in the collection of taxes between the countries that are parties to the agreement. The agreement is a crucial tool for businesses and individuals engaged in cross-border transactions, as it helps in minimizing tax liability and avoiding the possibility of double taxation.