Claim Process and Tax Benefits

DTAA income tax refers to the Double Taxation Avoidance Agreement, a tax treaty between two countries to prevent the same income from being taxed twice. DTAA in income tax helps businesses and individuals who earn income in one country but live in another. This ensures they don’t pay tax on the same income in both countries. Under this agreement, tax relief can be claimed through exemption or credit methods.

Non-resident Indians (NRIs), foreign investors and multinational companies benefit the most from this. This agreement falls under the Data Income Tax section of tax regulations, offering clarity, fairness, and reduced tax burdens across borders, boosting global trade and investment.

Why is DTAA Important in Income Tax?

DTAA is important in income tax because it prevents double taxation on the same income earned in two countries, ensuring fair treatment of taxpayers. It promotes international trade and investment by offering clarity on tax liabilities. The DTAA income tax rates vary based on the country-specific treaty and are often lower than the domestic rates, especially on interest, dividends, and royalties. Applying income tax rules for NRIs is crucial, enabling them to create tax relief and avoid paying excess taxes globally. 

How does DTAA work in India?

DTAA with India works by allowing individuals and businesses earning income in India and residing in another country to avoid paying tax on the same income twice. Taxpayers can get relief through the DTAA exemption method (income tax in one country only) or the credit method (foreign tax paid is credited against Indian tax liability).

Income Types Covered Under DTAA

DTAA of Income Tax Act covers the income types like salary, interest, dividends, royalties, capital gains and business profits. It helps avoid double taxation on this income earned across countries, making international earnings more tax-friendly and easier to manage. The table below will help you to understand things better:

Income Type	DTAA Applicability
Salary Income	Yes – Based on residence and source country
Dividend Income	Yes – Lower TDS under DTAA
Interest Income	Yes, concessional tax rates are available
Capital Gains	Depends on the country-specific DTAA
Royalties & Technical Fees	Article 12 of most DTAAs
Rental Income	Taxed based on the location of the property

DTAA TDS Rates by Income Type (Example: India–USA)

TDS under DTAA between India & USA offers reduced tax rates on key incomes. As per the DTAA TDS rate chart, dividends are taxed at 15% interest, 15% royalties, and 15% technical fees. The DTAA tax rates are lower than regular rates and help avoid double taxation, making tax compliance easier for NRIs and foreign entities. Valid documents like the Tax Residency Certificate (TRC) are required to claim these benefits. 

Income Type	Regular TDS %	Under DTAA %
Dividend	20%	15%
Interest	30%	15%
Royalties	10%	15%
Technical Fees	10%	15%

Note: The rates may vary based on agreements with other countries. For example, the revised treaty between India and Kenya has been reduced from 15% to 10% on dividends, 20% to 10% for the royalties and 17.5% to 10% for management and professional fees

TDS Implications Under DTAA 

The TDS implications under DTAA help reduce the tax burden on cross-border income by applying conventional rates. The following points will help you understand how it works:

• The TDS is deducted at a lower DTAA rate instead of the regular Indian rates
•  A Tax Residency Certificate (TRC) is mandatory to claim DTAA benefits
• Dividend income is taxable at DTAA rates, usually 15% instead of 20%
• Interest, royalties, and technical fees also enjoy reduced TDS
• TDS benefit applies only if PAN & the necessary forms (Form 10F) are submitted
• This promotes compliance and double taxation.

What Are The Benefits Of DTAA?

DTAA benefits for NRI taxpayers are significant, especially when avoiding double taxation on income earned in India and abroad. Under the Income Tax Act, Section 90 applies when India has signed a DTAA with another country. In such cases, the taxpayer can claim tax relief through either the exemption or the tax credit method. On the other hand, section 91 provides relief when no formal DTAA exists between India and the foreign country. It allows unilateral tax relief, ensuring taxpayers are not penalised for global earnings. This promotes fairness and simplified cross-border tax compliance for NRIs.

List Of Countries And Their DTAA Types And DTAA Rates

Below is the list of countries, their DTAA types, and DTAA rates with countries, making taxation easier for NRIs and investors. 

COUNTRY	DTAA TYPE	DTAA TDS RATES
Afghanistan	Limited Agreement	–
Albania	Comprehensive Agreement	10%
Argentina	Tax Information Exchange Agreement	–
Armenia	Comprehensive Agreement	10%
Australia	Comprehensive Agreement	15%
Austria	Comprehensive Agreement	10%
Bahamas	Tax Information Exchange Agreement	–
Bahrain	Tax Information Exchange Agreement	–
Bangladesh	Comprehensive Agreement, Limited Multilateral Agreement	10%
Belarus	Comprehensive Agreement	10%
Belgium	Comprehensive Agreement	15%
Belize	Tax Information Exchange Agreement	–
Bermuda	Tax Information Exchange Agreement	–
Bhutan	Comprehensive Agreement, Limited Multilateral Agreement	10%
Botswana	Comprehensive Agreement	10%
Brazil	Comprehensive Agreement	15%
British Virgin Islands	Tax Information Exchange Agreement	–
Bulgaria	Comprehensive Agreement	15%
Canada	Comprehensive Agreement	15%
Cayman Islands	Tax Information Exchange Agreement	–
China	Comprehensive Agreement	15%
Columbia	Comprehensive Agreement	–
Croatia	Comprehensive Agreement	5%
Cyprus	Comprehensive Agreement	10%
Czech Republic	Comprehensive Agreement	10%
Denmark	Comprehensive Agreement	15%
Egypt	Comprehensive Agreement	10%
Estonia	Comprehensive Agreement	10%
Ethiopia	Limited Agreement, Comprehensive Agreement	10%
Fiji	Comprehensive Agreement	5%
Finland	Comprehensive Agreement	10%
France	Comprehensive Agreement	10%
Georgia	Comprehensive Agreement	10%
Germany	Comprehensive Agreement	10%
Greece	Comprehensive Agreement	20%
Guernsey	Tax Information Exchange Agreement	–
Hashemite Kingdom of Jordan	Comprehensive Agreement	10%
Hong Kong	Comprehensive Agreement	–
Hungary	Comprehensive Agreement	10%
Iceland	Comprehensive Agreement	10%
Indonesia	Comprehensive Agreement	10%
Iran	Limited Agreement	10%
Ireland	Comprehensive Agreement	10%
Isle of Man	Tax Information Exchange Agreement	–
Israel	Comprehensive Agreement	10%
Italy	Comprehensive Agreement	15%
Japan	Comprehensive Agreement	10%
Kazakhstan	Comprehensive Agreement	10%
Kenya	Comprehensive Agreement	15%
Kuwait	Comprehensive Agreement	10%
Kyrgyz Republic	Comprehensive Agreement	10%
Latvia	Comprehensive Agreement	10%
Lebanon	Limited Agreement	–
Liberia	Tax Information Exchange Agreement	–
Libya	Comprehensive Agreement	20%
Lithuania	Comprehensive Agreement	10%
Luxembourg	Comprehensive Agreement	10%
Macedonia	Comprehensive Agreement	10%
Malaysia	Comprehensive Agreement	10%
Maldives	Tax Information Exchange Agreement, Limited Multilateral Agreement	–
Malta	Comprehensive Agreement	10%
Mauritius	Comprehensive Agreement	7.50-10%
Mongolia	Comprehensive Agreement	15%
Montenegro	Comprehensive Agreement	10%
Morocco	Comprehensive Agreement	10%
Mozambique	Comprehensive Agreement	10%
Myanmar	Comprehensive Agreement	10%
Namibia	Comprehensive Agreement	10%
Nepal	Comprehensive Agreement, Limited Multilateral Agreement	15%
Netherland	Comprehensive Agreement	10%
New Zealand	Comprehensive Agreement	10%
Norway	Comprehensive Agreement	15%
Oman	Comprehensive Agreement	10%
Pakistan	Limited Multilateral Agreement	–
People’s Democratic Republic of Yemen	Limited Agreement	–
Philippines	Comprehensive Agreement	15%
Poland	Comprehensive Agreement	15%
Portuguese Republic	Comprehensive Agreement	10%
Principality of Liechtenstein	Tax Information Exchange Agreement	–
Principality of Monaco	Tax Information Exchange Agreement	–
Qatar	Comprehensive Agreement	10%
Romania	Comprehensive Agreement	15%
Russia	Comprehensive Agreement	10%
Saint Kitts and Nevis	Tax Information Exchange Agreement	–
Saudi Arabia	Comprehensive Agreement	10%
Serbia	Comprehensive Agreement	5%
Seychelles	Tax Information Exchange Agreement	–
Singapore	Comprehensive Agreement	15%
Slovak Republic	Comprehensive Agreement	–
Slovenia	Comprehensive Agreement	5%
South Africa	Comprehensive Agreement	10%
South Korea	Comprehensive Agreement	15%
Spain	Comprehensive Agreement	15%
Sri Lanka	Comprehensive Agreement, Limited Multilateral Agreement	7.50%
Sudan	Comprehensive Agreement	10%
Sweden	Comprehensive Agreement	10%
Swiss Confederation	Comprehensive Agreement	10%
Syrian Arab Republic	Comprehensive Agreement	7.50%
Taipei	Specified Associations Agreement	12.50%
Tajikistan	Comprehensive Agreement	10%
Tanzania	Comprehensive Agreement	12.50%
Thailand	Comprehensive Agreement	25%
Trinidad and Tobago	Comprehensive Agreement	10%
Turkey	Comprehensive Agreement	15%
Turkmenistan	Comprehensive Agreement	10%
United Arab Emirates	Comprehensive Agreement	12.50%
Uganda	Comprehensive Agreement	10%
Ukraine	Comprehensive Agreement	10%
United Kingdom	Comprehensive Agreement	15%
United Mexican States	Comprehensive Agreement	10%
United States of America	Comprehensive Agreement	15%
Uzbekistan	Comprehensive Agreement	15%
Vietnam	Comprehensive Agreement	10%
Zambia	Comprehensive Agreement	10%

For a more detailed list of DTAA rates, like the DTAA rate between India and the USA, the DTAA rate between India and the UK, the DTAA between India and Germany, India-Canada, India-Netherlands DTAA, India-France DTAA, India-UAE DTAA, India-Singapore DTAA and more, refer to this link.

DTAA Eligibility

DTAA eligibility shows who can claim benefits under the Double Taxation Avoidance Agreement. It helps avoid double taxation for individuals earning income in multiple countries. Below are the criteria to keep in mind:

• An individual must be a tax resident of one country (e.g India or the DTAA partner country)
• Income must be earned from another country (source country)
• A valid Tax Residency Certificate (TRC) is mandatory
• You must have a Permanent Account Number (PAN) in India
• Required forms, such as Form 10F and a declaration of beneficial ownership, must be submitted
• DTAA benefits are applicable only if India has an active DTAA with that country

Documents Required to Apply for Tax Relief Under DTAA

To benefit from the DTAA’s provisions, an NRI must timely submit the following documentation to the relevant deductor.

• Format for self-declaration and indemnity
• self-attested copy of a PAN card
• self-attested passport and visa copies
• Proof of PIO (if applicable)
• Certificate of Tax Residence (TRC)

The Finance Act of 2013 states that unless a person gives a Tax Residency Certificate to the deductor, they are not eligible to claim any benefits of relief under a double taxation avoidance agreement.

An application for a Certificate of Residence for Purposes of an Agreement Under Sections 90 and 90A of the Income Tax Act, 1961 (Form 10FA) must be made to the income tax authorities to obtain a Tax Residency Certificate. Once the application has been approved, the certificate will be issued in Form 10FB.

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DTAA Filing Process in India

The DTAA filing process in India allows taxpayers to claim tax relief on foreign income. Below is the step-by-step process to file DTAA:

• The first thing is to have a Tax Residency Certificate (TRC)
• Submit Form 10F online via the Income Tax e-filing portal
• Ensure you have an Indian PAN (Permanent Account Number)
• Declare that you are the beneficial owner of the income
• Share TRC, Form 10F and declaration with the indian payer to avail reduced TDS under DTAA
• Report foreign income and claim the tax relief using Section 90/91

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Types of Double Taxation Treaty

The different types of DTAA or double taxation avoidance agreements that can be entered into are as follows, depending on the level of trade and bilateral relations between countries: –

1. Limited Agreements 

Limited DTAAs only cover specific forms of income. The DTAA, for instance, between India and Pakistan is restricted to shipping and aviation profits.

2. Tax Information Exchange Agreements (TIEA)

The OECD (Organisation for Economic Co-operation and Development) launched the TIEA programme to tackle detrimental tax behaviours such as corporate tax evasion, international tax evasion, and illicit financial flows. Through the sharing of information about tax evaders, these agreements promote international cooperation and transparency between governments. Bilateral or multilateral TIEAs are both possible.

3. Bilateral Agreements

A bilateral treaty, as the name suggests, is a contract entered into by just two nations. For instance, the DTAA between India and the USA is a bilateral treaty because it was signed by just two nations, India and the USA.

4. Multilateral Treaties

Multilateral treaties, like the APAC (Asia-Pacific) or SAARC (South Asian Association for Regional Cooperation) countries’ conventions, are agreements signed by several nations. Several nations have joined a multilateral convention on tax laws, and as a result, the existing Treaties for those nations that are signatories to the Multilateral Convention have been altered.

5. Comprehensive Agreements

All of the income sources listed in any model convention are typically covered by comprehensive DTAAs. The vast majority of the DTAAs that India has signed are of a comprehensive type.

Techniques used in the DTAA to prevent double taxation are-

Credit Method

In order to calculate the tax burden in the resident country, this technique adds the income taxed in the source country to the total income of the resident country. The resident nation does, however, permit a deduction for taxes paid in the source country from such tax obligations.

• Full Credit Approach: When tax is paid in the source nation, the resident country automatically grants credit for the tax paid there, without any conditions.
• Ordinary Credit method: This approach is used in agreements where a credit against the tax due in the resident country is permitted. Only if the income is liable to tax in the foreign jurisdiction may the credit be granted. If the tax paid in the foreign jurisdiction exceeds the tax due in the resident nation, the excess tax is disregarded, and credit is only granted up to the amount of tax due in the resident country. It may also be limited so that only the amount of tax that is owed on each head of income in the country of residence may be deducted from the tax paid in the foreign jurisdiction against that head of income.

Underlying Credit Method

Firms’ profits are often first taxed at their hands and then again taxed at the shareholders’ hands when the residual profit is handed to shareholders as a dividend after paying corporate tax. Under this system, residents are given credit for both the taxes deducted from the dividend and the taxes paid on the profits used to pay the dividend.

Tax-Sparing Credit Method

With this approach, the resident country receives a credit for the amount of the tax that would have been due in the foreign jurisdiction. When calculating and providing foreign tax credits in the resident country, the tax benefits provided by a certain overseas jurisdiction are assumed to have been paid as a foreign tax.

Exemption Approach

By using this strategy, income that has previously been subject to tax in the source country (a foreign country) might be partially or entirely exempt from taxation in the resident country. DTAA agreements between nations typically have clauses that specify exception policies.

• Complete Exemption: In this method, the resident country does not take into account income that is taxed in the source country when determining its taxable income. Example: Under a treaty between States A and B, State B does not take into account income that is taxed in State A.
• Progressive Exemption: In this system, income taxed in the source nation is not taxed in the country of residence but is instead taken into account for determining the tax rates in the country of residence. Example: Under a treaty between States A and B, income that is subject to tax in State A will not be subject to tax in State B; but, State B will consider the income when determining its tax rates. When the country of residency levies a higher tax rate on income that exceeds a certain level, this is helpful.

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How Are DTAA Taxes Calculated?

Calculating double tax relief under section 90 of the Income Tax Act can be done with the following steps-

• Step 1: Calculate global income, which is the sum of foreign and Indian income.
• Step 2: Determine the amount of income tax due on such a global income.
• Step 3: Calculate the average tax rate by dividing the tax amount by the worldwide income.
• Step 4: Multiply the average tax rate by the amount of foreign income to arrive at a final sum.
• Step 5: Determine the amount of tax paid abroad

The relief must be less than the sum of steps 4 and 5.

Calculating double tax relief under section 91 of the Income Tax Act can be done with the following steps-

• Step 1: Determine the amount of tax due in India.
• Step 2: The lowest tax rate between the Indian tax rate and the foreign tax rate is considered. 
• Step 3: Multiply the income that is subject to two taxes by the lower tax rate. This is the relief provided under Section 91.

Penalties for Tax Fraud, Evasion or Complete Avoidance

Penalties can be levied under the following circumstances-

1. Failure to keep up with necessary paperwork and accounting records

Typically, a fine of 25,000 is imposed. The fine, however, will be equal to 2% of the amount of any overseas transactions or specified domestic transactions the taxpayer has engaged in.

2. Penalty for falsified papers, including phoney invoices

If the income tax authorities discover that the taxpayer’s submitted books of accounts include any of the following:

• Generation of sales or purchase invoices without the supply of actual goods or services
• Purchase or sales invoice generated by a person, firm or entity that does not exist.
• Producing forged or fake documentation such as false invoices, certificates, etc.
• Exclusion of any entry that is important for calculating taxable income,

In the aforementioned situations, the assessee may be required to pay a fine equal to the total of these erroneous or omitted entries.

3. Income Underreporting

If the taxpayer’s income is lower than the income established by the tax authorities, a penalty of 50% of the tax due will be assessed. If underreporting was caused by inaccurately stated income, the penalty would be doubled to 200% of the tax due.

4. Not Filing Income Tax Return Penalty

The Assessing Officer may impose a fine of INR 5,000 on the taxpayer if the Income Tax Return is not filed in full compliance with the applicable provisions of the Act.

5. Failure to pay taxes on time

The amount of the fine that is owed must be determined by the tax authorities. However, the amount of the penalty will not go beyond the total amount of tax due.

6. Unreported/ Hidden earnings

• A penalty of 10% is due in cases of unreported income.
• Where a search process was started on or after January 7, 2012, but prior to December 15, 2016:
  • If undeclared income is revealed during a search and the taxpayer pays the tax, interest, and filing fee, a penalty of 10% of the hidden income will be assessed.
  • A 20% fine of the unreported income will be imposed if it is not declared during the search but is disclosed in the ITR that is filed after the search. – In all other circumstances, a penalty of 60% c will be applied. 
• Where the search was started on or after December 15, 2016
  • If unreported money is revealed during a search and the taxpayer pays the tax, plus interest, and files an ITR, a penalty of 30% of the unreported income will be assessed.
  • In all other circumstances, a penalty of 60% will be assessed.

Understanding taxes and finances is a herculean task. It can be particularly difficult to get your head around all the jargon. To make things easier for you, NoBroker has curated a group of finance experts who can help you with all your doubts regarding DTAA. Head over to NoBroker for more helpful information about taxes and finances.

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How NoBroker Can Help?

NoBroker can help simplify the DTAA income tax process for NRIs by connecting them with trusted experts who understand international taxation. Their legal team also assists in obtaining the Tax Residency Certificate (TRC), filing Form 10F, and ensuring all DTAA-related documents are submitted correctly. NoBroker also help you calculate the correct TDS rate and claim benefits under sections 90 & 91. 

Frequently Asked Questions

Q1. Is DTAA applicable for NRIs?

Ans. According to the Double Tax Avoidance Agreement, NRIs can avoid paying double tax. Non-Resident Indians (NRIs) typically live overseas while making their living in India. In such circumstances, it is probable that the income made in India would be subject to tax in both India and the nation where the NRI resides. They would consequently be required to pay tax twice on the same earnings. The Double Tax Avoidance Agreement (DTAA) was established as a precaution to prevent this.

Q2. How can we avoid double taxation in India and the USA?

Ans. According to Article 25(2) of the DTAA, in order to prevent double taxation on your USA-sourced income, you may claim a foreign tax credit in India against the income tax that is due there. You must submit Form 67 electronically prior to the ITR filing deadline in order to claim the foreign tax credit in India.

Q3. Is money sent to India from overseas taxable?

Ans. According to RBI regulations, money sent to India is also not subject to taxation if it is done for the following reasons: Getting married, acquiring an inheritance, and receiving money from any foundation, fund, university, school, or healthcare facility.

Q4. How do I make DTAA claims in an ITR?

Ans. There are two ways to obtain tax relief under the DTAA: the exemption technique and the tax credit approach. Income is taxed in one nation and exempt in another according to the exemption mechanism. Tax relief can be sought in the nation of residence using the tax credit system, where income is taxed in both jurisdictions.

Q5. What are DTAA TDS rates in India?

Ans. In accordance with the DTAA, which India has signed with other countries, a predetermined percentage of income received by inhabitants of that country must have tax withheld from it. Accordingly, the TDS required when NRIs receive income in India will be calculated in accordance with the rates outlined in the Double Tax Avoidance Agreement with that country.

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