Double Taxation Avoidance Agreement (DTAA)

 

Double Taxation Avoidance Agreement (DTAA)

·       The Double Taxation Avoidance Agreement or DTAA is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.

·       At present, India has double tax avoidance treaties with more than 80 countries around the world.

·       The need for DTAA arises out of the imbalance in tax collection on global income of individuals.

·       If a person aims to do business in a foreign country, he/she may end up paying income taxes in both cases, i.e. the country where the income is earned and the country where the individual holds his/her citizenship or residence.

·       For instance, if you are moving to a different country from India while leaving income sources such as interest from deposits in here, you will be charged interest by both India and the country of your current residence as per your consolidated global earnings. Such a scenario can have you pay twice the tax over the same income. This is where the DTAA becomes useful for taxpayers.

Benefits of Double Taxation Avoidance Agreements

·       The countries under the DTAA are provided relief from double taxation. Relief on double taxation is provided by the exemption of incomes earned abroad from tax in the resident country or by providing credit to the extent taxes that have been already been paid abroad.

·       In some cases, the DTAA also provide concessional rates of tax.

·       DTAA can become an incentive for even legitimate investors to route investments through low-tax regimes to sidestep taxation. This leads to a loss of tax revenue for the country.

·       DTAA also provides tax certainty to the various investors and businesses of both the countries through the clear allocation of taxing rights between the contracting states by Agreement.

India and DTAA

·       India has signed the Double Taxation Avoidance Agreements or DTAA with 88 countries. Foreign companies that are resident in the countries that India has a DTAA with, can claim more beneficial provisions and rates between the IT Act and the DTAA.

·       Recently, the Government of the Republic of India and the Government of the People’s Republic of China had signed the Double Taxation Avoidance Agreement (DTAA) on 2018. 

·       This agreement was signed for providing relief on double taxation along with preventing fiscal evasion concerning taxes on income.



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