incidence of Double taxation is attracted in Indian context,
when a Non-resident of India (NRI) is liable for tax in the source country
(i.e. India) and also in country of his residence (say USA) on his worldwide income
as well as on the income accruing or arising or received in India, resulting in
Double taxation on said income.
A Double Taxation
Avoidance Agreement (DTAA) is entered by two countries, with the basic
objective to mitigate said double taxation on the same income in both home and
source/host countries (i.e. double taxation of same income) thus promote and
foster economic trade and investment between two countries.
provisions in relation to DTAA are explained as under:
providing relief from Double Taxation:
makes provision for elimination on double taxation in one of the following
· Exemption Method: Granting exclusive right to tax to one of the countries;
· Concessional Rate of tax: Granting taxing rights to both countries but making a provision for limiting the rate of taxation of each country;
· Tax Credit Method: Granting right to resident of another country to obtain credit for taxes paid in the source country.
DTAA covers provisions to grant benefit of relief of taxation for various types
of income, e.g: Interest income, Dividend Income, Salary income, Capital Gains,
Business Income, House property income etc.
We explain by an example how the relief is provided under
the DTAA on interest income earned from NRO Bank account held by NRI in India who
is Resident of USA.
shall be considered as a “source country” and hence interest income shall be taxable
in India. In addition, NRI being a Resident of USA the same interest income
shall be taxed by USA as a “residence country”. The actual tax liability on NRO
interest of Rs. 1 lakh is given below:
Taxability of income
Rate of tax
Tax in India (source Country)
Concessional Rate prescribed in India-USA DTAA (A)
Tax in USA (Resident
Taxation as per local applicable rates (B)
Benefits granted in the India-USA DTAA
Credit for taxes paid in India as deduction from tax
payable in USA (C)=(A)+(B)
Total Taxes paid in India and in USA
required for claiming relief/benefit under DTAA:
A NRI can
avail benefits/reliefs under DTAA by timely submission of documents listed
below to the payer of income:-
Residency Certificate (TRC) obtained from Government of Resident country
copy of Passport and Visa
(in case of Banks)
4. OCI card
copy of PAN Card (if available)
Mandatory details to be mentioned in the TRC:
1. Name of
(individual, company, firm etc.) of the assessee
of the assessee
tax identification number in the country or specified territory of residence or
in case no such number, then a unique number on the basis of which the person
is identified by the Government of the country or the specified territory
for which the residential status as mentioned in TRC is applicable
of the applicant (outside India) for the period for which TRC is applicable
containing the above details should be duly verified by the Government of the Country
or the Specified Territory of which the NRI claims to be a resident for tax
addition to above, as per Notification No. 03/2022,
dated 16-07-2022of Central Board of Direct Taxes (CBDT) any
individual claiming such relief/benefit under DTAA is mandatorily required to
File Form 10F (as provided in the Act) electronically from his
Income-tax e-filing portal.
to obtain a TRC:
NRI may approach the appropriate Income Tax or Government Authorities of the
country where he/she resides to obtain a TRC. NRI may check with a Chartered
Accountant for the detailed procedure to obtain TRC.
case of an Indian resident, he/she 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
Validity of TRC:
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 hassle.
to submit the TRC:
TRC so obtained can be submitted to the below authorities:
1: Submit to the payer of Income:
may consider submitting the copy of TRC to payer of the income, thereby
ensuring that such payer withholds taxes at such concessional rates or at zero
rate as per the benefit/relief mentioned in the DTAA with respective country.
eg: Continuing the above example if TRC is submitted to the bank in India, the
said bank will withhold taxes at concessional rate of 15% as mentioned in DTAA
between India and USA instead of withholding the taxes at highest rate of 30%
as mentioned under the provisions of the Act.
2: Submit to Income Tax Department at the time of filing of Tax returns
In case, if TRC is not submitted and tax is
not withheld at concessional rates or at zero rate as per the benefit/relief
mentioned in the DTAA with respective country, then NRI may avail benefit of
DTAA while filing his tax return and claim any refund of excess tax withheld,
which is at the discretion of the Income Tax Department and involves time lag
in receipt of said refund.
Instrument (MLI) and its effect on DTAA entered in by India with other
recently signed the Multilateral Convention to implement Tax Treaty Related
Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as
Multilateral Instrument-MLI) along with representatives of many countries and
its provisions will be applicable on India’s DTAAs from FY 2020-21 so as to act
as a deterrent to tax planning strategies and curb revenue loss through treaty
abuse and base erosion and profit shifting strategies.