The term doubles taxation relief is an initiative launched by the Government of India, which allows a person to escape the clutches of being taxed twice for the same income. This incident mainly takes place for non-resident Indians, who first pay taxes on income generated in India and then are once again required to pay taxes in their home country as well. Double Taxation Relief is an arrangement whereby the person is liable to pay taxes only once. The provisions of this arrangement are further segregated under two sections, namely, Double Taxation Avoidance Agreement (DTAA) and no Double Tax Avoidance Agreement. Here We’ll discuss Double Taxation Relief in India in a very simple way so that a layman can understand with ease.
Double Tax Avoidance Agreement (DTAA)- Section 90
Under this provision, the incidence of Double Taxation can be avoided by two different methods-
- Tax Credit Method– Under this method, a taxpayer pays taxes in the country where his income has originated. In return, he receives tax credits which can later be used as a deduction while paying taxes in the home country. Let us take an example to make things clear. Suppose, Mr. Arjun has generated an income of INR 50, 000 in the US and is a resident of India. So, Mr. Arjun will be required to pay taxes in the US and receive a tax credit in return. Now when Mr Arjun will file his return in India, he can use the same tax credit as a deduction as taxes on a part of his income was already charged by the US Government.
- Exemption Method- This is a relatively simple method where a taxpayer is required to pay tax on his income in either one of the countries. The moment he has paid his tax on the income, the amount becomes tax-free in the other country as well.
Income Exempts under DTAA
DTAA allows NRIs to avoid paying taxes on income from these sources in India if the income is taxable in the NRI’s country of residence. In terms of the Double Tax Avoidance Agreement, NRIs do not have to pay taxes twice on the following income:
- Salary Received in India
- Services Provided in India
- Capital Gains on Transfer of Assets in India
- Fixed Deposits in India
- Saving Bank Account in India
- House Property Located in India
Recommended: Income Tax for NRI A.Y.2022-23 & A.Y.2023-24
The Double Taxation Avoidance Agreement (DTAA), signed by India with different countries, specifies the rate at which tax has to be deducted on income paid to residents of a particular country. Consequently, NRIs earning income in India would be subject to the TDS rates set in the Double Tax Avoidance Agreement.
Most of the major nations in the world where Indians reside have signed a double tax avoidance agreement with India. The following are some of these countries:
|Country||DTAA TDS rate|
|United States of America||15%|
|Mauritius||7.5% to 10%|
New Provision of Section 89A
- Among the proposals in Budget 2021, FM proposes to remove the double taxation on foreign retirement accounts that causes hardship for NRIs.
- The Income Tax Act was amended to include Section 89A to provide relief from taxation for NRIs with retirement benefits accounts in notified countries.
- According to the new provision, such income will be taxed in the manner and on the basis of the year as prescribed by the government.
- The provisions of this article apply to the persons who are deemed to be ‘specified persons’, that is to say, those who are resident in India but open a notified account in that country (notified by the Central Government) while being resident in another country while being a non-resident of India.
- A notified account is an account opened by a specified individual in the notified country for the purpose of receiving retirement benefits, and the income from such an account is not subject to tax on an accrual basis, but instead to tax on a receipt basis by such a country.
Relief where no Double Taxation Agreement exists- Section 91
Now, there may be situations where India may not have a DTA agreement with a particular country. In that case, relief will only be offered to residents of India. The income which has been taxed in the other country will be compared as per taxability in India and the lower of the two shall be given as a deduction.
There is a small twist under Section 91. The Government of India CAN offer relief to a taxpayer in respect of double taxation, whether or not there exists a treaty between India and the other country. The following conditions will offer unilateral relief to a taxpayer in India:
- The person has the status of an ‘Indian Resident’ in the previous year.
- The person or organization has paid taxes under the foreign laws in the foreign country.
- The nature of income should be similar to the previous year and the taxpayer should have received it outside India.
- The income of the taxpayer should have been taxed in India as well as the country with which India doesn’t have a DTA.
Double taxation relief under an agreement between specified associations
This is an extension of Section 90, where flexibility has been given to specified organizations within different countries to avoid the incidence of double taxation through the assistance of the Central Government. The Central Government, in such respect, may notify through the Official Gazette:
- Approval of DTR (Double Taxation Relief)
- Avoidance of double taxation
- Recovery of Income Tax
- Information exchange for prevention of tax evasion.
However, it should be noticed that the arrangements under double taxation relief under an agreement between specified associations is applicable in cases where one association belongs to India and the other association is situated outside of the Indian territory.
Income Tax Official Page for Double Taxation Relief Agreements – Visit Here