For Non-Resident Indians (NRIs) earning income in India and abroad, understanding how to avoid double taxation is crucial. The Double Taxation Avoidance Agreement for NRIs ensures that they are not taxed twice on the same income—once in India (source country) and again in their country of residence. By leveraging the benefits of DTAA, NRIs can save taxes and comply with global taxation regulations effectively.
In this blog, we’ll explore how DTAA works, the methods to claim tax relief, and actionable steps for NRIs to navigate this process seamlessly.
What is the Double Taxation Avoidance Agreement (DTAA)?
The Double Taxation Avoidance Agreement (DTAA) is a tax treaty between two countries to prevent NRIs from paying taxes on the same income in both countries. It applies to various types of income, including:
- Salary earned in India
- Rental income from property in India
- Capital gains from asset sales
- Interest from savings accounts or fixed deposits
- Dividends earned from Indian companies
DTAA is designed not only to eliminate the burden of double taxation but also to encourage investment and tax compliance by NRIs.
How DTAA Benefits NRIs
- Tax Savings: NRIs can reduce their overall tax liability by claiming relief under DTAA.
- Transparency: The treaty ensures that tax obligations are clear and predictable for NRIs.
- Avoid Double Taxation: NRIs pay tax only in one country or can claim a credit for taxes paid in India when filing taxes in their resident country.
DTAA Tax Rates for NRIs
India has signed DTAA agreements with over 100 countries, and specific tax rates are defined for each. Below are the DTAA TDS rates for key countries:
| Country | DTAA TDS Rate |
| United States of America | 15% |
| United Kingdom | 15% |
| Canada | 15% |
| Australia | 15% |
| Germany | 10% |
| UAE | 12.5% |
| Singapore | 15% |
| Mauritius | 7.5% to 10% |
These rates ensure that NRIs do not pay excessive taxes while earning income in India.
How to Claim Benefits Under DTAA?
NRIs can claim DTAA benefits using the following methods:
1. Exemption Method: Under this method, the income is taxed in only one country, and the other country grants a complete exemption.
2. Deduction Method: Taxes paid in the source country (India) can be deducted from taxable income in the resident country.
3. Tax Credit Method: NRIs can claim a credit for the taxes paid in India against their tax liability in the resident country.
Steps to Apply DTAA Benefits
Follow these steps to claim DTAA benefits:
- Obtain a Tax Residency Certificate (TRC): This certificate is issued by the tax authority in your country of residence and proves your residency status.
- Submit Form 10F: A declaration form required to claim DTAA benefits in India.
- File Income Tax Return (ITR): Report your gross income and taxes paid in India to claim foreign tax credits.
- Provide Supporting Documents: Maintain dividend/interest certificates, TDS certificates (Form 16A), and proof of tax payments in India.
Example of DTAA in Action
Case Study: Megha, an NRI residing in the US, earns a dividend of ₹20,00,000 from Indian investments. As per the India-US DTAA, a 25% withholding tax is applied in India.
| Particulars | Amount (₹) |
| Gross Dividend | 20,00,000 |
| Withholding Tax in India | 5,00,000 (25%) |
| US Tax Liability (30%) | 6,00,000 |
| Foreign Tax Credit (FTC) | 5,00,000 |
| Final US Tax Payable | 1,00,000 |
Here, Megha can claim a Foreign Tax Credit in the US for the ₹5,00,000 tax already paid in India, thereby avoiding double taxation.
On What Income Does DTAA Apply?
DTAA applies to the following types of income earned in India:
- Salary income
- Rental income from house property
- Capital gains on asset sales
- Interest on fixed deposits and savings accounts
- Dividends from Indian companies
- Income from services provided in India
NRIs can utilize DTAA provisions to avoid paying double tax on these income sources in their resident country.
Key Principles of DTAA
- Tax Treaty Prevails: If a DTAA provision contradicts Indian tax laws, the treaty provisions take precedence.
- More Favorable Option: If both the DTAA and Indian tax law offer tax relief, the option more beneficial to the taxpayer is applied.
- Dispute Resolution: If the treaty is silent on any issue, Indian tax laws provide guidance.
How Brivan Consultants Can Help
Navigating DTAA provisions and tax filings can be overwhelming for NRIs. At Brivan Consultants, we offer end-to-end solutions to help NRIs:
- Obtain Tax Residency Certificates (TRC) and file Form 10F
- Accurately calculate taxes and claim Foreign Tax Credits (FTC)
- Minimize tax liabilities by leveraging DTAA provisions
- Comply with Indian tax laws and ensure seamless tax filing
Our experts provide tailored guidance to ensure you avoid double taxation and maximize your financial outcomes.
Conclusion
The Double Taxation Avoidance Agreement for NRIs is a vital tool to eliminate double taxation on income earned in India. By understanding the benefits of DTAA, applicable tax rates, and the process to claim relief, NRIs can significantly reduce their tax burdens and ensure compliance.
At Brivan Consultants, we specialize in NRI taxation, helping you navigate DTAA seamlessly and maximize the benefits. Contact us today to simplify your tax obligations and secure your financial future.
