Friday, January 13, 2017

NRI can use Double Tax Avoidance Agreement (DTAA) to save tax

NRIs are always in doubt with taxation and many times they end up by paying double tax on same income, both in the foreign country they are currently working and staying and on India. In order to avoid this double taxation of income, the home and the source country mutually enter into tax treaty generally known as DTAA. India has signed DTAA treaty with more than 80+ countries, which includes the USA, UK, Canada, Singapore, Malaysia, UAE, Germany, Australia etc.

As per DTAA, generally, the income may be taxed at a lower rate or exempted in the source country. To avail the benefit of DTAA in India, Tax Residency Certificate (TRC) along with Form 10 F and Permanent Account Number (PAN) is to be furnished. Wherever tax is applicable as per the DTAA, if the PAN is not furnished, the benefit of concessional rate as per the DTAA shall not be available.

In case any interest income is received by a non-resident from India, the tax is liable to be deducted at the rate of 20%+ applicable surcharge and cess as per the Indian tax laws except in the case of FCNR deposits and NRE deposits where no tax is applicable. But in case India has a treaty with the country of residence of the recipient, the tax will be deducted at a lower rate provided a valid TRC along with Form 10 F and a PAN is furnished and hence a higher post-tax return will be received by the depositor. Also, a credit can be claimed for the taxes deducted in the source country, from tax payable in the home country.

Important points about DTAA (Double Tax Avoidance Agreemnt)

1) Normally income tax is subject to DTAA while property tax is paid where the property is located. Income could be due to services, interest, dividend and another form of income.

2) In order to take benefit of DTAA, India and the country you are currently staying must have signed the DTAA agreement. Here are some of the major countries, which has signed DTAA with India

you can see the full list here.
  1. United State of America (USA)
  2. England or United Kingdon (UK)
  3. Singapore
  4. Australia
  5. Kuwait
  6. Singapore
  7. Malaysia
  8. Qatar
  9. Saudi Arabia
  10. South Africa
  11. UAE

3) By using DTAA, you can reduce the tax on NRO fixed deposit from 30.9% to normal 10%. If the tax is already deducted then you can also claim the money by filing tax returns.
How to use DTAA to avoid double taxation on same income

That's all about Double Tax Avoidance Agreement or DTAA. If you have paid a good sum of the amount as a tax in the foreign country, where you are currently staying and also paying more than 30.9% TDS on NRO fixed deposit, maybe it's time to use DTAA to pay less tax or no tax on your interest income in India. India has signed DTAA with all major countries where we have a sizable population of NRI e.g. USA, Singapore and UK. If TDS has been deducted, you can still claim the money by filing your tax returns.


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  2. Do I need to inform interested earned in India NRE FD in Australian taxation lodgement?? every year??

    or does it track by tax authority of Australia??? whenever I repitiate fund from NRE to Australian bank?? plz guide

    1. I don't know about Australian Tax law but if they are taxing on your global income just like USA do, then yes you need to inform them. India won't tax you for interest income on NRE account though.