What is Double Taxation Avoidance Agreement (“DTAA”)?

Ans. A DTAA is a bilateral agreement entered into between two countries, in our case, between India and other foreign state. The basic objective is to mitigate, taxation of income in both the countries (i.e. double taxation of same income).

What is the provision in the Act to avoid double taxation of income in more than one country?

Ans. If an individual’s income is chargeable to tax in more than one country, the individual may claim benefit of Double Taxation Avoidance Agreement (if any existing). Where there is no DTAA, section 91 of the  Act grants unilateral relief in respect of income which has suffered tax both in India and in a country with which no DTAA exists (i.e. doubly taxed income)

An NRI who is a tax resident of US has a NRO fixed deposit with a Bank in India. He receives interest of Rs. 20 lacs on such deposit? The Bank deducts tax at the rate of 30.9% on such interest income. NRI intends to claim benefit under the Indo- US DTAA. Will that be beneficial to him?

Ans. NRI can avail the benefit of lower rate of tax in India as prescribed in the DTAA. Under DTAA between India and US, his interest income will be subject to tax at the rate of 15%. Hence NRI will be able to save excessive tax deduction of 15.9%.

What are the documents mandatorily required to be submitted to the payer of income for availing beneficial rates of tax as prescribed in the DTAA?

Ans. Following documents are required:

1. Tax residency Certificate (“TRC”) from the Government of his country of residence.
2. Form 10F as per Income Tax Rules in certain cases
3. Declaration to the payer (Bank) that the payee is eligible to claim DTAA benefit.
4. PAN
5. Passport
6. Any other document if required by the Bank.