The incidence of double taxation occurs when an individual is required to pay tax more than once on the same income generated from a country different from his/her home country.
A taxpayer’s own country (referred to as home country) has a sovereign right to tax the individual; the source of income may be in some other country (referred to as host country) which also claims a right to tax the income arising in that country. The result is that income arising to a resident of the home country is subject to tax in the home country as part of the individual’s total world income and, also in host country which provides the source for that income.
The Double Tax Avoidance Agreements (DTAA) is essentially bilateral agreements entered into between two countries, in our case, between India and another foreign state. The basic objective is to avoid, taxation of income in both the countries (i.e. Double taxation of same income) and to promote and foster economic trade and investment between the two countries. The advantages of DTAA are as under:The advantage of DTAA are as under:
a. Lower Withholding Taxes (Tax Deduction at Source)
b. Complete Exemption of Income from Taxes
c. Underlying Tax Credits
d. Tax Sparing Credits
The Provisions of DTAA override the general provisions of taxing statue of a particular country. It is now well settled that in India the provisions of the DTAA override the provisions of the domestic statute. Moreover, with the insertion of Sec.90 (2) in the Indian Income-tax Act, 1961 it is clear that assessee has an option of choosing to be governed either by the provisions of particular DTAA or the provisions of the Income-tax Act,1961 whichever are more beneficial.
The Non Resident can certainly take the benefit of the provisions of DTAA entered into between India and the country, in which he resides, more particularly in respect of Interest Income from NRO account,
Government securities, Loans, Fixed Deposits with Companies and dividends etc. This is explained below: -
For the Assessment Year 2015-16,
Withholding Tax Rate (TDS) under the Indian Income Tax for Interest Income - 33.99% whereas,
Rate of Tax prescribed in the DTAA with the country where Non Resident resides e.g. Singapore - 15%
Therefore, chargeable rate will be 15 % (Lower of the two)
Every Non Resident should choose lower of the tax rate prescribed in DTAA with the country where he resides and the tax rate prescribed under the Indian tax laws.
Note that it is mandatory to have a PAN card in order to obtain DTAA benefits.
As per Finance Act 2013, a person shall not be entitled to claim any benefit of relief under Double Taxation Avoidance Agreement (DTAA) unless he furnishes a Tax Residency Certificate (TRC)
to Deductor. Further, the Act also specifies that along with TRC, aperson has to produce other documents and information as prescribed by Central Government to avail the benefit of DTAA. How to obtain a TRC:
A NRI may approach the appropriate Income Tax or Government Authorities of the country where he/she resides to obtain a TRC. We can share with you a detailed procedure to obtain TRC from the applicable country.
An Indian resident may make an application for TRC in Form 10FA to the Income Tax Department. Subsequently on verification of details furnished, the Income Tax Department will issue a TRC to the Indian resident in Form 10FB.
Kindly note that a TRC is typically valid for one financial year and no other document in lieu of TRC is considered for availing DTAA benefits. Therefore, it is mandatory to submit TRC every year in order to avail DTAA benefit without any hassles. No other document in lieu of TRC shall be considered for availing the DTAA rate for the said financial year.
To avail benefits under the DTAA, NRIs should submit following documents:
- Tax Residency Certificate and / or Form 10F
- Self attested copy of PAN Card
- Self declaration cum indemnity format
- Self attested copy of Passport and Visa
- PIO/OCI card (if applicable)