June 20, 2019
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Double Taxation Avoidance Agreements (DTAA).

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Analysis of Double Taxation Avoidance Agreements

Author: Ms. MaahiMayuri, New Law College, Bharati Vidyapeeth Deemed University, Pune

What is a DTAA?

A treaty signed between India and another country, which may include two or multiple countries, which facilitates the prevention of the payment of double taxes by taxpayers is a The DTAA, or Double Taxation Avoidance Agreement. The same is an agreement so that the taxpayers can avoid the payment of taxes in multiple countries, i.e. the source country as well as residence country. India’s position is such that it has tax avoidance treaties with more than 80 countries.

Need of a DTAA?

The imbalance caused by the tax collection on an individual’s global income arises the need of a DTAA. When a person is to do a business in multiple countries, there is a possibility that the person would be paying taxes in the country where the income is earned as well as the country of citizenship or residence.

Objective of DTAA

The main objective behind DTAAs is to reduce the possibilities of tax evasion in both countries between whom the agreement is signed.

Benefits of DTAA:

The main benefit of DTAA is not paying multiple taxes. However, other benefits include exemption from taxes, tax credits, and lower tax withholdings.  Lower tax withholdings further lower the taxpayers TDS on their interest, royalty or dividend incomes. Also, in some countries, the DTAA helps minimize taxes.

DTAA Rates:

The DTAA rates are varied from country to country, further depending upon parties to the agreement. TDS rates on interest earned usually are either 10%or 15% while exchange rates vary from 7.50% to 15

Income types under DTAA

In India, the Double Tax Avoidance Agreement is applicable to NRI’s and their income earned from:

  • Services provided by them in India
  • The salary they receive in India
  • Property such as houses situated in India
  • capital gains which are a result of the transfer of assets
  • Fixed deposits (FD’s) in the country
  • Savings Account

DTAA methods

There are two methods under which the benefits of DTAA can be used:

  • Tax relief claimed in the country of residence, that is, Tax credit
  • Tax relief claimed in either of the two countries who are a part of the DTAA, that is, Exemption

India’s DTAA with various Countries along with the TDS rates on interests

Sl No. Country TDS Rate
1 Armenia 10%
2 Australia 15%
3 Austria 10%
4 Bangladesh 10%
5 Belarus 10%
6 Belgium 15%
7 Botswana 10%
8 Brazil 15%
9 Bulgaria 15%
10 Canada 15%
11 China 15%
12 Cyprus 10%
13 Czech Republic 10%
14 Denmark 15%
15 Egypt 10%
16 Estonia 10%
17 Ethiopia 10%
18 Finland 10%
19 France 10%
20 Georgia 10%
21 Germany 10%
22 Greece As per agreement
23 Hashemite kingdom of Jordan 10%
24 Hungary 10%
25 Iceland 10%
26 Indonesia 10%
27 Ireland 10%
28 Israel 10%
29 Italy 15%
30 Japan 10%
31 Kazakhstan 10%
32 Kenya 15%
34 South Korea 15%
34 Kuwait 10%
35 Kyrgyz Republic 10%
36 Libya As per agreement
37 Lithuania 10%
38 Luxembourg 10%
39 Malaysia 10%
40 Malta 10%
41 Mauritius 7.50-10%
42 Mongolia 15%
43 Montenegro 10%
44 Morocco 10%
45 Mozambique 10%
46 Myanmar 10%
47 Namibia 10%
48 Nepal 15%
49 Netherlands 10%
50 New Zealand 10%
51 Norway 15%
52 Oman 10%
53 Philippines 15%
54 Poland 15%
55 Portuguese Republic 10%
56 Qatar 10%
57 Romania 15%
58 Russia 10%
59 Saudi Arabia 10%
60 Serbia 10%
61 Singapore 15%
62 Slovenia 10%
63 South Africa 10%
64 Spain 15%
65 Sri Lanka 10%
66 Sudan 10%
67 Sweden 10%
68 Swiss Confederation 10%
69 Syrian Arab Republic 7.50%
70 Tajikistan 10%
71 Tanzania 12.50%
72 Thailand 25%
73 Trinidad and Tobago 10%
74 Turkey 15%
75 Turkmenistan 10%
76 UAE 12.50%
77 UAR (Egypt) 10%
78 Uganda 10%
79 UK 15%
80 Ukraine 10%
81 United Mexican States 10%
82 USA 15%
83 Uzbekistan 15%
84 Vietnam 10%
85 Zambia 10%

                The data above is retrieved from http://taxclubindia.com/CHARTS/12-14.pdf

Conclusion

Thus, the Double Taxation Avoidance agreements have greatly helped the taxpayer reduce his tax liabilities to a minimum while enjoying running his business in multiple countries. However, there is always a need for more clear provisions that need to be brought in this regard.

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