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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.

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. 

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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 foreign investors and expats can benefit from India’s DTAAs?

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:

Withholding Tax Rates

Country

Dividend

Interest

Royalty

Fee for Technical Services

Albania

10%

10%

10%

10%

Armenia

10%

10%

10%

10%

Australia

15%

15%

10%/15%

No separate provision

Austria

10%

10%

10%

10%

Bangladesh

  • 10% (if at least 10% of the capital of the company paying the dividend is held by the recipient company);
  • 15% in all other cases

10%

10%

No separate provision

Belarus

  • 10%, if paid to a company holding 25% shares;
  • 15%, in all other cases

10%

15%

15%

Belgium

15%

15% (10% if loan is granted by a bank)

10%

10%

Bhutan

10%

10%

10%

10%

Botswana

  • 7.5%, if shareholder is a company and holds at least 25% shares in the investee-company;
  • 10%, in all other cases

10%

10%

10%

Brazil

15%

15%

  • 25% for use of trademark;
  • 15% for others

No separate provision

Bulgaria

15%

15%

  • 15% of royalty relating to literary, artistic, scientific works other than films or tapes used for radio or television broadcasting;
  • 20%, in other cases

20%

Canada

  • 15%, if at least 10% of the voting powers in the company, paying the dividends, is controlled by the recipient company;
  • 25%, in other cases

15%

10%-20%

10%-20%

China

10%

10%

10%

10%

Columbia

5%

10%

10%

10%

Croatia

  • 5% (if at least 10% of the capital of the company paying the dividend is held by the recipient company);
  • 15% in all other cases

10%

10%

10%

Cyprus

10%

10%

10%

10%

Czech Republic

10%

10%

10%

10%

Denmark

  • 15%, if at least 25% of the shares of the company paying the dividend is held by the recipient company;
  • 25%, in other cases
  • 10% if loan is granted by bank;
  • 15% for others

20%

20%

Estonia

10%

10%

10%

10%

Ethiopia

7.5%

10%

10%

10%

Finland

10%

10%

10%

10%

Fiji

5%

10%

10%

10%

France

10%

10%

10%

10%

Georgia

10%

10%

10%

10%

Germany

10%

10%

10%

10%

Greece

20%

20%

10%

No separate provision

Hongkong

5%

10%

10%

10%

Hungary

10%

10%

10%

10%

Indonesia

10%

10%

10%

10%

Iceland

10%

10%

10%

10%

Iran

10%

10%

10%

10%

Ireland

10%

10%

10%

10%

Israel

10%

10%

10%

10%

Italy

  • 15% if at least 10% of the shares of the company paying dividend is beneficially owned by the recipient company;
  • 25% in other cases

15%

20%

20%

Japan

10%

10%

10%

10%

Jordan

10%

10%

20%

20%

Kazakhstan

10%

10%

10%

10%

Kenya

10%

10%

10%

10%

Korea

15%

10%

10%

10%

Kuwait

10%

10%

10%

10%

Kyrgyz Republic

10%

10%

15%

15%

Libyan Arab Jamahiriya

10%

20%

20%

No separate provision

Latvia

10%

10%

10%

10%

Lithuania

  • 5%, if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends.
  • 15%, in other cases

10%

10%

10%

Luxembourg

10%

10%

10%

10%

Malaysia

5%

10%

10%

10%

Malta

10%

10%

10%

10%

Mongolia

15%

15%

15%

15%

Mauritius

  • 5%, if at least 10% of the capital of the company paying the dividend is held by the recipient company;
  • 15%, in other cases

7.5

15%

10%

Montenegro

  • 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;
  • 15% in other cases

10%

10%

10%

Myanmar

5%

10%

10%

No separate provision

Morocco

10%

10%

10%

10%

Mozambique

7.5%

10%

10%

No separate provision

Macedonia

10%

10%

10%

10%

Namibia

10%

10%

10%

10%

Nepal

  • 5% if the beneficial owner is a company which owns at least 10 per cent of the shares of the company paying the dividends;
  • 15% in all other cases.

10%

15%

No separate provision

Netherlands

10%

10%

10%

10%

New Zealand

15%

10%

10%

10%

Norway

10%

10%

10%

10%

Oman

  • 10%, if at least 10% of shares are held by the recipient company;
  • 12.5%, in other cases

10%

15%

15%

Philippines

  • 15%, if at least 10% of the shares of the company paying the dividend is held by the recipient company;
  • 20%, in other cases
  • 10%, if interest is received by a financial institution or insurance company;
  • 15% in other cases 

15% if it is payable in pursuance of any collaboration agreement approved by the Government of India

No separate provision

Poland

15%

15%

22.5%

22.5%

Portuguese Republic

10%/15%

10%

10%

10%

Qatar

  • 5% if the beneficial owner is a company which owns at least ten per cent of the shares of the company paying the dividend; and
  • 10% in all other cases.

10%

10%

10%

Romania

10%

10%

10%

10%

Russian Federation

10%

10%

10%

10%

Saudi Arabia

5%

10%

10%

No separate provision

Serbia

  • 5%, if the recipient is a company and holds 25% shares;
  • 15%, in any other case

10%

10%

10%

Singapore

  • 10%, if at least 25% of the shares of the company paying the dividend is held by the recipient company;
  • 15%, in other cases
  • 10%, if loan is granted by a bank or similar institute including an insurance company;
  • 15%, in all other cases

10%

10%

Slovenia

  • 5% if the beneficial owner is a company which owns at least ten per cent of the shares of the company paying the dividend; and
  • 15% in all other cases.

10%

10%

10%

South Africa

10%

10%

10%

10%

Spain

15%

15%

10%

10%

Sri Lanka

7.5%

10%

10%

10%

Sudan

10%

10%

10%

10%

Sweden

10%

10%

10%

10%

Swiss Confederation

10%

10%

10%

10%

Syrian Arab Republic

  • 5%, if at least 10% of the shares of the company paying the dividend is held by the recipient company;
  • 10%, in other cases

10%

10%

No separate provision

Taipei

12.5%

10%

10%

10%

Tajikistan

  • 5%, if at least 25% of the shares of the company paying the dividend is held by the recipient company;
  • 10%, in other cases

10%

10%

No separate provision

Tanzania

10% (5% if shareholder is a company and holds 25% shares)

10%

10%

No separate provision

Thailand

10%

10%

10%

No separate provision

Trinidad and Tobago

10%

10%

10%

10%

Turkey

15%

  • 10% if loan is granted by a bank, etc.;
  • 15% in other cases

15%

15%

Turkmenistan

10%

10%

10%

10%

Uganda

10%

10%

10%

10%

Ukraine

  • 10%, if at least 25% of the shares of the company paying the dividend is held by the recipient company;
  • 15%, in other cases

10%

10%

10%

United Arab Emirates

10%

  • 5% if loan is granted by a bank/similar financial institute;
  • 12.5%, in other cases

10%

No separate provision

United Arab Republic (EGPT)

10%/20%*

20%*

20%*

No separate provision

United Mexican States

10%

10%

10%

10%

United Kingdom

15%/10%

  • ·         10%, if interest is paid to a bank;
  • ·         15%, in other cases 

10%/15%

10%/15%

United States

  • 15%, if at least 10% of the voting stock of the company paying the dividend is held by the recipient company;
  • 25% in other cases
  • 10% if loan is granted by a bank/similar institute including insurance company;
  • 15% for others

10%/15%

10%/15%

Uruguay

5%

10%

10%

10%

Uzbekistan

10%

10%

10%

10%

Vietnam

10%

10%

10%

10%

Zambia

  • 5%, if at least 25% of the shares of the company paying the dividend is held by a recipient company for a period of at least 6 months prior to the date of payment of the dividend;
  • 15% in other cases

10%

10%

10%

Note 1. Articles 11, 12 and 13 of the India-UAR (Egypt) treaty don't provide withholding tax rates in respect of dividend, interest and royalty payments. Thus, the tax shall be withheld as per rates applicable under the Income-tax Act 1961.

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:

Method

Type of Relief

Pros

Cons

Deduction method

The domestic country allows its taxpayer to claim a deduction for taxes, including income taxes, paid to a foreign government in respect of foreign source income.

Saves tax by the amount of Foreign Tax Paid x Domestic Tax Rate.

This method does not fully avoid double taxation.

Exemption method

 

The domestic country provides its taxpayer with an exemption for foreign source income.

This method is more favorable if tax rates in domestic countries are higher than those in the source country.

 

Tax sparing/holiday:

Various tax exemptions are given to incentivize economic activities, which help the assesses limit the tax burden.

 

 

 

 

 

 

 

 

Credit method

 

  • Underlying credit:

The domestic country gives either full or partial credit for taxes paid in the foreign country. The taxpayer will be taxed on the same sourced income, and the tax is to be determined accordingly – but the taxpayer will pay a lower amount of taxes to the extent of credit available.

 

 

  • Ordinary credit:

In this method, the taxes paid on the profits from which the dividend is declared can be claimed as a credit against the taxes payable on the dividend income.

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.

SSAs will protect cross-border workers from double social security contributions, ensuring they don’t pay into both Indian and home country systems for the same period. The agreements enable exportability of pension and aggregation (totalisation) of service periods, so eligibility for social security benefits is preserved even if a person works in multiple countries. This scheme allow exemption from Indian social security contributions if the foreigner’s home country has an SSA with India and issues a Certificate of Coverage.

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

India has entered into SSAs with the following 20 countries:

 

Country

Status

1

Australia

Operational

2

Austria

Operational

3

Belgium

Operational

4

Brazil

Operational

5

Canada

Operational

6

Czech Republic

Operational

7

Denmark

Operational

8

Finland

Operational

9

France

Operational

10

Germany

Operational

11

Hungary

Operational

12

Japan

Operational

13

Korea (Republic of)

Operational

14

Luxembourg

Operational

15

Netherlands

Operational

16

Norway

Operational

17

Portugal

Operational

18

Quebec

Operational

19

Sweden

Operational

20

Switzerland

Operational

FAQ about DTA in India

What is a Double Taxation Avoidance Agreement (DTAA)?

A Double Taxation Avoidance Agreement (DTAA) is a treaty signed between two or more countries to prevent the same income from being taxed twice. DTAAs allocate the taxing rights between the countries to ensure that taxpayers do not pay tax on the same income in multiple jurisdictions.

Why is DTAA important for global investors and expatriates?

DTAA is crucial for global investors and expatriates as it helps avoid the burden of double taxation, making international investment more attractive and cost-effective. It provides clarity on tax liabilities and can lead to tax savings, enhancing the overall returns on investments and income earned abroad. 

What are the benefits of a DTAA for foreign companies operating in India?

Foreign companies operating in India benefit from DTAAs through reduced tax liabilities, avoidance of double taxation, lower withholding tax rates on certain types of income (such as dividends, interest, and royalties), and increased clarity on tax obligations. Additionally, DTAAs often allow these companies to claim a credit in their home country for taxes paid in India, thereby further reducing their overall tax burden and avoiding the issue of being taxed twice on the same income. This credit mechanism ensures that foreign companies are not disadvantaged by their international operations and encourages cross-border investments.

How do I apply for benefits under a DTAA in India?

To apply for benefits under a DTAA in India, you must obtain a Tax Residency Certificate (TRC) from your home country's tax authorities, electronic submission of Form 10F, and provide the necessary supporting documentation to the Indian tax authorities. 

Can individuals also benefit from DTAAs or is it only for companies?

Both individuals and companies can benefit from DTAAs. Individuals, including expatriates and foreign nationals earning income in India, can also claim relief from double taxation under these agreements. 

What is a Tax Residency Certificate (TRC) and why is it necessary?

A Tax Residency Certificate (TRC) is a document issued by the tax authorities of a country to certify that an individual or entity is a tax resident of that country. It is necessary to claim benefits under a DTAA as it proves eligibility for tax relief. 

What is Form 10F and how is it used in the DTAA application process?

Form 10F is a document required by the Indian tax authorities that provides details such as the taxpayer's name, nationality, tax identification number, and residency status. It must be submitted along with the TRC to claim DTAA benefits. 

What should I do if my country does not have a DTAA with India?

If your country does not have a DTAA with India, you may not be able to claim relief from double taxation under an agreement. However, you should consult with a tax advisor to explore other potential tax relief options available under Indian tax laws or your home country's tax laws. 

How can I optimize my tax liabilities using a DTAA?

To optimize tax liabilities using a DTAA, ensure proper documentation (TRC, Form 10F), understand the specific provisions of the DTAA, and seek professional advice to identify all possible exemptions, credits, and reduced tax rates applicable to your situation. 

How does DTAA affect dividend, interest, royalty, and technical service fees?

DTAAs often provide reduced withholding tax rates or exemptions on income from dividends, interest, royalties, and technical service fees, leading to lower tax liabilities for the recipients of such income. 

What is unilateral relief and how does it differ from DTAA benefits?

Unilateral relief is a mechanism by which a country provides tax relief on foreign income independently, without the need for a DTAA. It is different from DTAA benefits, which arise from a bilateral or multilateral agreement between countries. It is applicable only to Indian residents.

What are Social Security Agreements (SSAs) and how do they relate to DTAAs?

Social Security Agreements (SSAs) are treaties between countries to avoid double contributions to social security systems and ensure that individuals do not lose out on social security benefits. While SSAs focus on social security, DTAAs focus on avoiding double taxation of income. 

Can I apply for DTAA benefits retroactively?

Retroactive application of DTAA benefits depends on the specific provisions of the agreement and the tax authorities' policies. It is advisable to consult with a tax expert to determine if retroactive claims are possible in your case. 

How often are DTAAs updated or renegotiated between countries?

DTAAs are periodically reviewed, updated, or renegotiated to reflect changes in tax laws, economic conditions, and bilateral relations. The frequency of updates varies, and significant changes may be publicized by the respective countries' tax authorities.

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