Double Taxation Avoidance Agreement

What is Double Taxation Avoidance Agreement (DTAA)?

The DTAA, or Double Taxation Avoidance Agreement 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 DTAA:

There are lots of benefits associated with DTAA for taxpayers. The basic benefit includes not having to pay double taxes on the same income. Apart from this,

  • Lower Withholding Tax (Tax Deduction at Source or TDS)
  • Tax credits
  • Exemption from taxes

The primary idea behind DTAA agreements with various countries is to minimize the opportunity for tax evasion for tax payers in either or both of the countries between which the bilateral/multilateral DTAA agreement have been signed.

Lower withholding tax is a plus for taxpayers as they can pay lower TDS on their interest, royalty or dividend incomes in India, while some agreements provide for tax credits in the source or country of operations so that taxpayers don’t pay the same tax twice. In some cases, such as agreements with Mauritius, Cyprus, Singapore, Egypt etc. capital gains tax is exempted which can be a boon to taxpayers as they can use the DTAA agreement to minimize taxes.

DTAA Rates:

The rates and rules of DTAA vary from country to country depending on the particular signed between both parties. TDS rates on interests earned for most countries is either 10% or 15%, though rates range from 7.50% to 15%. List of DTAA rates for particular countries is given in the next section.

Double Taxation Avoidance Agreement (DTAA) Country List:

A total of 85 countries currently have DTAA agreements with India. The following countries having Double Taxation Avoidance Agreement with India. TDS rates on interests are listed below. (Listed alphabetically)

Sl No.

Country

TDS Rate

1

Armenia

10%

2

Australia

15%

3

Austria

10%

4

Bangladesh

10%

5

Belarus

10%

6

Belgium

15%

7

Botswana

10%

8

Brazil

15%

9

Bulgaria

15%

10

Canada

15%

11

China

15%

12

Cyprus

10%

13

Czech Republic

10%

14

Denmark

15%

15

Egypt

10%

16

Estonia

10%

17

Ethiopia

10%

18

Finland

10%

19

France

10%

20

Georgia

10%

21

Germany

10%

22

Greece

As per agreement

23

Hashemite kingdom of Jordan

10%

24

Hungary

10%

25

Iceland

10%

26

Indonesia

10%

27

Ireland

10%

28

Israel

10%

29

Italy

15%

30

Japan

10%

31

Kazakhstan

10%

32

Kenya

15%

33

South Korea

15%

34

Kuwait

10%

35

Kyrgyz Republic

10%

36

Libya

As per agreement

37

Lithuania

10%

38

Luxembourg

10%

39

Malaysia

10%

40

Malta

10%

41

Mauritius

7.50-10%

42

Mongolia

15%

43

Montenegro

10%

44

Morocco

10%

45

Mozambique

10%

46

Myanmar

10%

47

Namibia

10%

48

Nepal

15%

49

Netherlands

10%

50

New Zealand

10%

51

Norway

15%

52

Oman

10%

53

Philippines

15%

54

Poland

15%

55

Portuguese Republic

10%

56

Qatar

10%

57

Romania

15%

58

Russia

10%

59

Saudi Arabia

10%

60

Serbia

10%

61

Singapore

15%

62

Slovenia

10%

63

South Africa

10%

64

Spain

15%

65

Sri Lanka

10%

66

Sudan

10%

67

Sweden

10%

68

Swiss Confederation

10%

69

Syrian Arab Republic

7.50%

70

Tajikistan

10%

71

Tanzania

12.50%

72

Thailand

25%

73

Trinidad and Tobago

10%

74

Turkey

15%

75

Turkmenistan

10%

76

UAE

12.50%

77

UAR (Egypt)

10%

78

Uganda

10%

79

UK

15%

80

Ukraine

10%

81

United Mexican States

10%

82

USA

15%

83

Uzbekistan

15%

84

Vietnam

10%

85

Zambia

10%

DTAA is an effective financial agreement that is beneficial to both the taxpayer as well as the respective tax collection authorities in various countries.

News about Double Taxation Avoidance Agreement

  • FPIs want India-Singapore DTAA to be Like France

    Foreign portfolio investors (FPIs) and private equity associations have made some suggestions towards the new Double Taxation Avoidance Agreement (DTAA) that will be signed between India and Singapore later this year.

    The industry is concerned that the tax treaty may be similar to the one forged with Mauritius, and wants it to be more like the treaties with France and the Netherlands.

    Among the suggestions is that capital gains tax should not be payable under different circumstances, including if the Singaporean investor holds less than 10 percent in the Indian company and if if shares are sold to a non-Indian buyer. Imposing capital gains tax – whether short-term or long-term – would make investment in India expensive for FPIs.

    8 August 2016

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