Can NRIs get the benefit of DTAA agreement for taxation?

In general, NRIs have many questions before they invest in India. One of them is whether they need to pay the tax twice after putting their money in Indian markets.

Jul 02, 2018 11:07 IST India Infoline News Service

accountant calculating financial data
In general, NRIs (Non-Resident Indians) have many questions before they invest in India. One of them is whether they need to pay tax twice after investing their money in the Indian markets.

Amit, an NRI, faced the same question and he hesitated to invest in India. His logic was simple: He liked the idea of investing in his home country, but he felt he would end up paying taxes twice i.e. once in India and the second time in the country he currently resides in.
 
When a colleague asked Amit to invest in the Indian markets, he cited the same reason and argued that he cannot pay taxes twice on a single earning. However, his colleague Mahesh clarified that this has been a common misconception. Further, Mahesh explained that there is a provision called DTAA agreement under which Amit need not pay the taxes twice.
 
If you too have the same doubt and want to know how an NRI can avail tax benefits under DTAA agreement, here is what Mahesh told Amit.
 
What is DTAA?
First, let us in understand what a DTAA agreement is. DTAA, which stands for Double Taxation Avoidance Agreement, is a mutual agreement between two countries where they decide on the applicable tax on NRIs in order to avoid double taxation.
 
With DTAA, an NRI can avail tax benefits where his earnings in India are taxed as per the rates decided in DTAA. This prevents the NRI from paying 30.9% as TDS (Tax Deduction at Source), instead, he could pay tax at 10-25% rate depending upon the country he currently resides in.
 
Here are the different types of income applicable under DTAA:
  • Fixed deposits in India
  • Saving bank account deposits in India
  • Capital gains earned in India
  • Salary received in India
  • Real estate property in India
How to get tax benefits?

There are two ways in which DTAA benefits could be availed:
  • Tax credit: If you have already paid tax in India, then you can get a tax credit in the country of residence.
  • Tax exemption: If you file the DTAA prior to TDS deduction, you can get the tax exempted on the earning in either of the two countries. 
To avail tax benefits under DTAA, you need to submit the following documents every financial year within the due dates:
  • TRC (Tax Residency Certificate): You need to submit TRC to claim benefits under DTAA. To obtain a TRC, you can approach the tax/government authorities of your current residence country, where you would get TRC certified, upon downloading form 10F.
  • Form 10F: You need to submit form 10F to avail benefits under DTAA.
  • PAN number: You also need to submit your PAN (Permanent Account Number) along with the above documents to get tax benefits. To obtain PAN you can apply with the IT (Income Tax Department, India) by submitting your KYC (Know your Customer) documents along with a duly filled application form.
By following the above procedure, you can avoid paying double tax and earn high returns on your Indian investments.

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