Double Taxation Relief

The phenomenon of taxing the same revenue twice is referred to as double taxation. Double taxation of the same income happens when the same income is recognized as accruing, generating, or being received in more than one country.

Avoiding Double Taxation

To ease income double taxes, provisions for double taxation relief have been implemented.  The relief from double taxation is available in two forms: unilateral relief and bilateral relief. The Government of India has signed the Double Taxation Avoidance Agreement (DTAA), a bilateral pact with over 150 nations that provides relief from double taxation to Indian citizens and residents.

Power To Choose

In a scenario where a Bilateral Agreement has been entered into with a foreign country according to Section 90, the taxpayer has the option of being taxed under the Double Taxation Avoidance Agreement or under the normal provisions of the Income Tax Act 1961, whichever is more advantageous to the concerned taxpayer.

What Exactly Is DTAA?

A Double Taxation Avoidance Agreement (DTAA) is a tax treaty signed by India and another country. By applying the provisions of this treaty, an individual can avoid getting taxed twice. DTAAs can be either comprehensive agreements that cover all sorts of income or particular treaties that solely target specific types of income.

Income Categories Covered By The Double Taxation Agreement

• Services originating and provided within India
• Salary from India
• Income from property within India
• Capital gains from India
• FD and Savings Account in India

So, How Does Working Abroad Influence Indians’ Ability To Pay Their Taxes?

• If you have just relocated to another country or are considering doing so, one of the most significant considerations is how to pay your taxes. Domestic policies vary widely between nations, thus staying on top of your taxation rules is something that every expatriate and NRI must do. 
• However, when you relocate abroad in the middle of the financial year, things become a little more tricky. This is due to the possibility of being taxed in both India and the country to which you have migrated. So, have a look, how to get out of tax issues and claim relief whenever possible.

How Does The Income Tax Act Provide Relief Under Double Taxation?

Relief from double taxation might be either unilateral or bilateral.

1) Unilateral Relief :

The Income Tax Act of 1961, Section 91, provides for unilateral relief from double taxation. According to the terms of this clause, an individual may be exempt from being taxed twice by the government, regardless of whether India and the foreign country in question have a DTAA. However, certain circumstances must be met in order for an individual to be eligible for unilateral relief.

These Are The Conditions :

• In the previous year, the individual or business must have been a resident of India.
• The income must have accrued to the taxpayer and been received by them outside of India in the previous financial year.
• The income should have been taxed in both India and the country with which no DTAA exists.
• In that foreign country, the individual or corporation should have paid taxes.

2) Bilateral Relief : 

Section 90 of the Income Tax Act of 1961 provides for bilateral benefit. It provides double taxation protection through a DTAA. This form of alleviation is provided in two ways.

Exemption Method : 

The exemption method protects you completely from being taxed twice. That is, if income earned outside of India has been taxed in the appropriate foreign country, it is not taxable in India.

Tax Credit Method : 

Under this approach, an individual or a corporation can claim a tax credit (deduction) for taxes paid outside of India. This tax credit can be used to offset the tax owed in India, lowering the taxpayer’s overall tax.

Are You Claiming Tax Incentives Under The DTAA? What You Should Know

To be eligible for this benefit, one must first determine whether the country in which they live or earn a living has a DTAA with India. Form 10F, a tax residence certificate, and a self-declaration in the required format must be filed with the organization responsible for deducting tax at source.

Form 10F :

This can be obtained through the bank or downloaded from the website www.incometaxindia.com.

Details such as the applicant’s nationality, tax identification number, residence, and term of residency must be filled out and the form signed.

Verification:

Form 10F must be confirmed by the government of the nation in which the taxpayer resides for the applicable time period.

Self-Declaration:

It is a declaration that the taxpayer resides in a foreign country that has a DTAA with India, and hence the tax rate applicable to the income is the rate specified in the DTAA.

Tax Residency Certificate:

A tax residency certificate must be obtained from the country in which the individual resided during the financial year. On submission of the appropriate documents and payment of the prescribed fees, a tax residence certificate is provided.

Note : 

• The taxpayer’s PAN must be submitted in Form 10F and the self-declaration form.
• In India, residents are required to pay tax on their worldwide income. As a result, in addition to reporting pay income earned in India, he must also record income earned abroad on submitting ITR. According to the DTAA with the particular country, double taxation relief may be available in the form of a credit or an exemption.
• The provisions of the I-T Act will apply to the extent that they are more advantageous to him. If there is no DTAA, he may claim credit for taxes paid overseas under Section 91 of the Income Tax Act.

Country & Its TDS Rate

1. USA, UK, Canada, Australia –15%
2. Germany, South Africa, New Zealand –10%
3. Singapore – 15%
4. Mauritius – 7.5% – 10%
5. Malaysia, Qatar, Oman, Sri Lanka – 10%
6. UAE – 12.5%
7. Thailand – 25%
8. Russia, Kenya – 10%

Individuals receiving income from other countries can thereby reduce their tax liabilities and avoid the burden of double taxation by utilizing the provisions of DTAAs and the relief measures provided under the Income Tax Act. Contact us at https://finaxis.in/services/ for additional legal guidance.