DTAA-What are its benefits to Non Resident Indians?
DTAA full form is the Double Taxation Avoidance Agreement. Which is useful to Non-Resident Indians.
The taxation for you will be different if you move from India to some other country.
Most of the time, an NRI will have income in Foreign countries and in India as well.
But most countries will charge on the global income.
As a result of this, you have to pay tax in both countries.
To avoid a double tax burden, DTAA will help you in lowering your tax burden.
NRI’s will be having different types of income in India like rental, Interest on Bank Fd, capital gain due to selling the physical asset and Are/Nro saving Bank Fd interest, etc.
But using DTAA, NRI can avoid paying double tax in abroad and in Inda.
What the Meaning of Double TAxation Agreement?…
DTAA is a tax treaty signed between India and with few other countries.
It will help Investors in not paying taxes two times in both countries.
More about DTAA…
- It will help Nri’s to pay low taxes.
- In addition, Helps NRI’s in not avoiding double taxation.
- It also helps the country more attractive to stay as it signed a tax treaty agreement.
These DTAA benefits are available to NRI every year.
So, NRI’s should provide necessary documents at the start of the year in order to get the DTAA benefit.
NRI’s will have to pay tax in India as per DTAA only.
As the Indian Govt has signed an agreement with the country where NRI is residing.
Actually, TDS on interest earned NRI Bank Fd is 30.9%.
However, If the NRI applies for DTAA benefit, the TDS will come down to 10% to 15% depending on the country that he is living.
Let’s see DTAA example with Zambia…
India has DTAA agreement with Zambia.
Let’s assume that You have some income in India
In addition, let’s assume that you are in a 30% tax bracket.
In the above case, usually in India a Tds of 30% will be deducted.
But as India has DTAA agreement with Zambia, only 10% Tds will be deducted on your income.
What are the types of Incomes which fall under DTAA?…
- Capital gain arose due to selling assets in India.
- Income generated for providing services in India.
- The salary that Is received in India.
- Interest earned from fixed deposits and bank accounts(nre/nro).
- Rental Income from House Property in India.
- The return generated from Mutual fund investment in India also may come under DTAA.
What are the countries that India has signed a DTAA agreement?…
Below is the list of Countries that signed the agreement and the Tds rate applicable in India.
Which sections of the I.T act will tell more about This tax benefit?…
I.T sections 90, 90 A, and 91 of 1961 will tell you more about this DTAA provision for the NRI’s.
Procedure to Claim Double Taxation Avoidance benefit?…
The following documents should be provided to the TAx deductor in order to get this benefit.
- Tax Residency Certificate.
- Pan Card Copy Self Attested.
- Self Attested Visa And Pass Port copies.
- Self-Declaration cum Indemnity format.
- Copy of PIO proof.
According to the Finance Bill, 2013, an NRI can not get this tax benefit without providing a tax residency certificate to the tax deductor.
In addition, to get this tax residency certificate, the applicant must to the tax authorities of residing country in form 10 FA.
How many ways that You can claim DTAA?…
In two ways NRI’s can claim this tax benefit.
1) Exemption Method…
In this method, tax relief can be claimed in any one of the two nations.
If you are living in U.S, then you can completely ignore India’s Income and can pay tax on only US income.
2) Tax Credit Method…
This is a famous method.
Let’s say that you are living in Zambia.
In addition, let’s assume that Zambia charges a 50% tax on your global income(your Indian income).
and You are taxed 30% on Indian Income in India.
You have already paid 30% tax in India, in order to avoid double tax, you can get 30% tax credit and you will pay the balance 20% tax in Zambia.
I hope you understood the DTAA benefit for the Non-Resident Indians, and plan wisely your Investments and Taxes.
The source for this article is Coverfox.