What is a Double Taxation Avoidance Agreement (DTAA)?

The full form of DTAA is Double Taxation Avoidance Agreement. DTAA is a treaty that is signed between two different countries. This agreement is signed to make the country a perfect destination that helps NRIs avoid paying taxes twice. DTAA includes what comes from our business profits, royalties, interest, capital gains, employment, etc. DTAA doesn't completely avoid taxes, but it helps NRIs to pay lower taxes in different countries.

How to Apply DTAA? 

Follow the steps given below to apply for DTAA: 

1. Tax liability according to the Income Tax Act: You need to find the income on which the tax is applicable and its liability of tax liability under the Income Tax Act.
2. Tax liability under DTAA: if the income of an individual falls under a particular article, then the Income will be taxed according to the article. 
3. Finalizing Tax Liability: With Section 90(2), you can decide which is more beneficial among DTAA or the IT Act. 

General article taxation would apply if NR/FC has a permanent establishment (PE) in India. 

How to Claim DTAA Benefits?

There are a total of 3 methods to claim DTAA, which are: 

• Exemption: Under this method, you can get tax relief in one of the two countries. 
• Tax credit: Through this method, you can claim in your residence country. 
• Deductions: Taxpayers can claim deductions paid to the foreign government in the residence country. 

Type of Income DTAA is Applicable

Under DTAA, you don't have to pay tax twice on the following income, given below: 

• Any salary income received in India.
• House property located in India.
• Capital gains on transfer of assets. 
• On a savings account in India. 
• FD in India. 
• Any type of services provided in India.