India's Double Taxation Avoidance Agreements (DTAA)

Global investors often find themselves in an unfavorable position of having to face being double taxed – taxed by two different countries on the same income – unless there is a Double Tax Avoidance Agreement in place between the two countries. For example, a company might be subject to taxes in its native or tax resident country and also in another foreign country where it has raised income by providing labor or via a foreign-invested company that provides goods or services.

Contributing Advisor

Lalitha Rao

Manager, Corporate Accounting Services

Double Tax Avoidance Agreements (DTAA) treaties effectively eliminate double taxation in specific cases by identifying exemptions or reducing the amount of taxes payable. It is, therefore important for foreign investors or expatriates working in India to be aware of any DTAAs that may exist between India and the their tax resident countries that apply to them and to understand how these agreements are applied in practice between their tax resident countries and India.

India's Double Taxation Avoidance Agreements (DTAA)

India has one of the largest networks of tax treaties for the avoidance of double taxation and prevention of tax evasion. India has established over 94 comprehensive DTAAs and eight limited DTAAs, compared with China’s 110 and Vietnam’s 80. The purpose of such tax treaties is to develop a fair and equitable system for the allocation of the right to tax several types of income between the ‘source’ and ‘residence’ countries. 

Applicability of DTAAs

A DTAA between India and other countries covers only tax residents of India and tax residents of the negotiating country. Foreign or non-resident companies operating in India are subject to withholding tax on their income – dividend, interest, royalty, or fees for technical services, as prescribed under the IT Act. However, foreign companies that are tax resident in the countries that India has a DTAA with, can claim more beneficial provisions and rates between the IT Act and the DTAA.

How to benefit from India DTAA

Double Taxation Avoidance Agreements (DTAA) provide significant benefits for individuals and businesses engaged in cross-border activities, helping to mitigate the burden of paying taxes in multiple jurisdictions. Here are some strategies and examples to optimize tax liabilities through India’s DTAA, and why consulting with tax experts or legal advisors is crucial.

• Review the specific provisions related to your income type, whether it's salary, dividends, interest, royalties or Fees for Technical Services, Capital gains, Income related to artists or sportsmen.
• Claiming tax credits allows taxpayers to reduce their tax liability in India by the amount of tax already paid in the foreign country and vice-versa.
• Income earned from shipping, air transport,  might be exempt from tax in one of the countries based upon the transaction happened within the provisions of DTAA.
• DTAAs ensure that the same income is not taxed twice.
• To avail DTAA benefits, you need to file specific forms, such as Form 10F, with the Indian tax authorities.

Examples of tax savings through DTAA

Dividends and interest

Consider an Indian resident receiving dividends from a company in the United States. Without DTAA, the dividend income would be taxed both in the US and India. However, under the India-US DTAA, the taxpayer can claim a credit for the tax paid in the US against their Indian tax liability, resulting in significant tax savings.

Salary income

An Indian professional working in the UK might be taxed on their salary in both countries. The India-UK DTAA provides relief by allowing the individual to claim credit for the tax paid in the UK, thereby reducing their Indian tax liability.

Royalty payments

An Indian company paying royalties to a foreign entity can benefit from reduced withholding tax rates under DTAA. For example, the India-Germany DTAA allows for a lower withholding tax rate on royalties, making it more cost-effective for Indian companies to engage with German entities.

List of Double Tax Avoidance Agreements with India

Below is a comprehensive list of countries that have a DTAA with India and their respective withholding tax rates:

International Taxation > Withholding Tax (incometaxindia.gov.in)

How to apply for India DTAA

Required documentation

• Tax Residency Certificate (TRC) is crucial for proving your tax residency in other country. This certificate must be obtained from the tax authorities in your country of tax residence.
• Form 10F includes necessary details about your residency and tax status. It must be filled electronically.
• Income statements and proof of tax payments substantiate the income on which you are claiming DTAA benefits and the taxes already paid.
• Identification and nationality proof proving your identity and nationality may also be required.

Step-by-step application process

• The first step is to ascertain if you are eligible to claim benefits under the DTAA between India and the other country. Typically, you must be a tax resident of one of the countries involved in the agreement.
• Secure a Tax Residency Certificate from the tax authorities of your resident country. This certificate serves as proof of your residency and is a mandatory document to claim DTAA benefits.
• In addition to the TRC, you need to complete Form 10F, which includes details such as your name, nationality, tax identification number, and confirmation of residency status. This form is essential for providing the necessary information to the Indian tax authorities.
• Collect all relevant documents, such as income statements, payment proofs, and any other documentation required by the Indian tax authorities to substantiate your claim under DTAA.
•  Form 10F to be submitted electronically with Indian tax authorities, along with valid TRC and supporting documents,  Ensure that all forms are correctly filled and that the information provided is accurate to avoid delays.
• After submission, follow up with the tax authorities to check the status of your application. Be prepared to provide additional information or clarification if required.

Tax relief mechanisms

Bilateral relief

When there is an agreement between two countries, relief is calculated according to mutual agreement between such countries. Bilateral relief can be granted by either of the following methods:

Unilateral relief for Indian residents

Some countries provide relief of taxes paid in the source country without any treaty between those two countries. This kind of relief is known as unilateral relief. In India, unilateral relief from double taxation is provided to Indian residents under section 91 of the Income Tax Act. It is applicable to Indian residents. 

Social Security Agreements

India has concluded various Social Security Agreements (SSAs) to ease the social security obligations on cross-border / international workers. Incentives such as detachment, exportability of pension, totalization of benefits, and withdrawal of social security benefits are available.

Social Security Agreement | Ministry of Labour & Employment|Government of India

India has entered into SSAs with the following 20 countries: