What do you mean by Double Taxation Avoidance Agreement?
As the name suggests, it is an agreement between two countries. The purpose of which is to enable taxpayers to avoid paying taxes for the same income in both countries (resident country and the country in which such revenue is generated).
India has entered into double taxation avoidance agreements with 85 countries at present.
This agreement facilitates the avoidance of double taxation by,
- Taxing the income in any one of the two countries (or)
- Exempting such income from tax in both the countries (or)
- Taxing the income in both countries, but providing a credit of tax paid in one country against tax payable in another country.
The rules are different under various treaties, in most cases, the country where the income is generated will have the right to levy tax. The country of residence will give credits for this tax or apply tax at a lower rate to compensate for the tax paid in another country.
Sections 90 & 91 of the Income Tax Act, 1961 offers double taxation relief to taxpayers.
Section 90 – Offers relief to taxpayers as per DTAA
Section 91 – Offers relief for taxpayers who are residents of countries having no DTAA with India
To benefit from the provision laid under DTAA, the non-resident taxpayer must possess a Tax Residency Certificate (TRC).
What is a Tax Residency Certificate?
- An Assessee, not being a resident of India shall obtain a Tax Residency Certificate from the government of the country of which the assessee is a resident.
- A TRC proves that a person is a taxpayer in the country of residence and hence is eligible for benefits to be claimed as per DTAA in cases of double taxation.
A valid TRC normally contains the following details,
- Name of the Assessee
- Nationality (in case of an individual) or specified territory of incorporation (in case of others)
- Nationality (in case of an individual) or specified territory of incorporation (in case of others)
- Country in which Assessee is resident
- Assessee’s Tax Identification Number in the country of residenceResidential status of the Assessee
- Residential status of the Assessee
- Period for which the certificate is applicable; and
- Address of the applicant during the period for which the certificate is applicable
If a TRC does not contain the above-mentioned details, the non-resident taxpayer should submit Form 10F to the concerned assessing officer along with the TRC issued by the country in which the assessee is a resident.
Point to note:
An Indian Resident will also require a TRC from an Indian authority to claim relief from double taxation outside India.
The TRC can be obtained by applying to the concerned jurisdictional officer in Form 10FA.
Types of Double Taxation Avoidance Agreement
Countries having DTAA with India and their type
| Limited Agreement | Comprehensive Agreement | TIEA | Limited Multilateral Agreement |
|---|---|---|---|
| Afghanistan | Albania | Argentina | Bangladesh |
| Ethiopia | Armenia | Bahamas | Bhutan |
| Iran | Australia | Bahrain | Maldives |
| Lebanon | Austria | Belize | Nepal |
| Maldives | Bangladesh | Bermuda | Pakistan |
| Pakistan | Belarus | British Virgin Islands | Sri Lanka |
| Yemen | Belgium | Brunei | |
| Yemen Arab Republic | Bhutan | Cayman Islands | |
| Botswana | Gibraltar | ||
| Brazil | Guernsey | ||
| Bulgaria | Isle of Man | ||
| Canada | Jersey | ||
| China | Liberia | ||
| Colombia | MACAO SAR | ||
| Croatia | Maldives | ||
| Cyprus | Marshall Islands | ||
| Czech Republic | Liechtenstein | ||
| Denmark | Monaco | ||
| Estonia | St. Kitts and Nevis | ||
| Ethiopia | San Marino | ||
| Fiji | Seychelles | ||
| Finland | |||
| France | |||
| Georgia | |||
| Germany | |||
| Greece | |||
| Jordan | |||
| Hong Kong | |||
| Hungary | |||
| Iceland | |||
| Indonesia | |||
| Iran | |||
| Ireland | |||
| Israel | |||
| Italy | |||
| Japan | |||
| Kazakhstan | |||
| Kenya | |||
| South Korea | |||
| Kuwait | |||
| Kyrgyz Republic | |||
| Latvia | |||
| Libya | |||
| Lithuania | |||
| Luxembourg | |||
| Macedonia | |||
| Malaysia | |||
| Malta | |||
| Mauritius | |||
| Mongolia | |||
| Montenegro | |||
| Morocco | |||
| Mozambique | |||
| Myanmar | |||
| Namibia | |||
| Nepal | |||
| Netherlands | |||
| New Zealand | |||
| Norway | |||
| OECD Member countries | |||
| Oman | |||
| Uruguay | |||
| Philippines | |||
| Poland | |||
| Portugal | |||
| Qatar | |||
| Romania | |||
| Russia | |||
| Saudi Arabia | |||
| Serbia | |||
| Singapore | |||
| Slovak Republic | |||
| Slovenia | |||
| South Africa | |||
| Spain | |||
| Sri Lanka | |||
| Sudan | |||
| Sweden | |||
| Switzerland | |||
| Syria | |||
| Taipei | |||
| Tajikistan | |||
| Tanzania | |||
| Thailand | |||
| Trinidad and Tobago | |||
| Turkey | |||
| Turkmenistan | |||
| UAE | |||
| Egypt | |||
| United Kingdom | |||
| United States of America | |||
| Uganda | |||
| Ukraine | |||
| Mexico | |||
| Uzbekistan | |||
| Vietnam | |||
| Zambia |
Note: There are certain countries with whom many types of agreements will be entered into, for eg, with Sri Lanka, we have a comprehensive agreement as well as a Limited Multilateral Agreement.
Dhaarani E and Mumtaz B
Research Associates at Pioneer One Consulting