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.
to avoid the hardship of double taxation, the Government of India has entered
into DTAA. The basic objective of a DTAA is to mitigate tax on the same income
in both home and host countries (i.e. double taxation of same income) and to
promote and foster economic trade and investment between two countries.
A NRI can
take the benefit of DTAA provisions entered into between India and the home
country, more particularly in respect of interest income from NRO a/c,
Government securities, loans, FDs with companies and dividends, or other
incomes which he/she may have. A DTAA allocates taxing rights to the home
country and the host country and the rate of taxation in the host country is
restricted to certain prescribed rates for respective sources of income.
The provisions of DTAA generally override the provisions of the taxing statute of a
For e.g.: Interest on an NRO FD is subject to TDS at the rate of 30% in
India if DTAA benefit is not provided. However, there are different beneficial
and lower rates of tax on Interest prescribed for different countries which may
range from 10% to 15%.
NRIs can claim
the benefit of TDS deduction at such lower rates by availing DTAA benefit /
relief after submission of required documents / information as may be required
to the deductor.