Double taxation — paying tax on the same income in two countries — is one of the biggest concerns for Non-Resident Indians (NRIs). India has signed Double Tax Avoidance Agreements (DTAAs) with over 90 countries, including the UK, USA, UAE, Singapore, and Australia. Understanding how to correctly apply DTAA provisions can significantly reduce your global tax burden.
What is a DTAA?
A Double Tax Avoidance Agreement (DTAA), also called a Tax Treaty, is a bilateral agreement between two countries to prevent the same income from being taxed twice. DTAAs typically cover:
- Which country has the right to tax specific types of income (salary, business profits, dividends, interest, royalties, capital gains).
- How to calculate relief when both countries tax the same income (exemption method or credit method).
- Rules for determining tax residency when a person qualifies as resident in both countries (tie-breaker rules).
- Exchange of information between tax authorities.
Types of Relief under DTAA
- Exemption Method: Income is taxable only in one country and fully exempt in the other. Example: Under India–UAE DTAA, salary income of an NRI resident in UAE is generally not taxable in India.
- Tax Credit Method: Income is taxable in both countries, but the country of residence allows a credit for taxes paid in the source country. This is the most common method. The credit is limited to the tax that would have been payable in the residence country on that income.
- Reduced Withholding Rates: DTAAs often provide reduced withholding tax rates on dividends, interest, and royalties. For example, the India–UK DTAA reduces withholding tax on dividends to 10%/15% vs. the domestic rate of 20%.
Common DTAA Provisions for NRIs in the UK and US
| Income Type | India–UK DTAA | India–USA DTAA |
|---|---|---|
| Salary (employment in UK/US) | Taxable in UK/US only (if working there) | Taxable in USA only |
| Indian rental income | Taxable in India; credit in UK | Taxable in India; credit in USA |
| Dividends | Max 10%/15% WHT in India | Max 15%/25% WHT in India |
| Interest from India | Max 10% WHT in India | Max 10%/15% WHT in India |
| Capital gains (Indian property) | Taxable in India | Taxable in India |
How to Claim DTAA Benefits
- Obtain a Tax Residency Certificate (TRC) from the tax authority of the country where you are resident — this is mandatory to claim DTAA benefits in India.
- File Form 10F with the Indian payer (bank, company paying dividends, etc.) if TRC does not contain all required information.
- Lower TDS certificate: Apply for a certificate from the Indian Assessing Officer under Section 197 for lower or nil TDS where DTAA exemption applies.
- File Indian ITR (ITR-2) claiming DTAA relief and reporting foreign tax credit where applicable.
- File in residence country claiming foreign tax credit for Indian taxes paid.