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.
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
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|
|22||Greece||As per agreement|
|23||Hashemite kingdom of Jordan||10%|
|36||Libya||As per agreement|
|69||Syrian Arab Republic||7.50%|
|73||Trinidad and Tobago||10%|
|81||United Mexican States||10%|
The data above is retrieved from http://taxclubindia.com/CHARTS/12-14.pdf
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.