Double Taxation Avoidance Agreement ( DTAA )

The “Double Tax Avoidance Agreement (DTAA)” or “Tax Treaty” is essentially bilateral agreements entered into between two countries, in our case, between India and another foreign state.

The basic objective is to avoid taxation of income in both the countries (i.e. Double taxation of same income). Currently India has comprehensive DTAA or Tax Treaty with 88 other countries.

Let’s take an example to understand how DTAA works; An NRI residing in USA is maintaining NRO Account with a bank in India. The interest earned on balances in this account is considered as the NRIs income originating in India. If India has DTAA with USA, this income will be taxed at the rate prescribed in the agreement and payable in USA and not India as per the agreement. It may differ as per the clauses in agreement.

The Non Resident can certainly take the benefit of the provisions of DTAA entered into between India and the country, in which he resides, more particularly in respect of Interest Income from NRO account, Government securities, Loans, Fixed Deposits with Companies and dividends etc.This also prevents tax evasion.