Business Finance

Know about double taxation agreement

The Double Taxation Agreement lets NRIs working in plenty of other jurisdictions avoid paying double taxes on profits from their home country and India. India has signed such an agreement with 80 nations.

What is the DTAA or Double Taxation Avoidance Agreement?

The DTAA (Double Taxation Avoidance Agreement) seems to be a tax peace agreement among India and then another nation (or two or more countries) to prevent taxpayers from collecting double personal income taxes received in source and resident countries. India now has double taxation treaties with over 80 nations across the world. The necessity for DTAA derives from an imbalance in the collection of taxes on individuals’ foreign earnings. Suppose a person wishes to conduct business in a foreign nation. In that case, they may be required to pay personal taxes for the jurisdiction where the revenue is produced and the country where another individual resides. 

For example, if you move to another country while maintaining sources of money in India, such as interests from deposits, you would be normally charged through both India and indeed the country where you are now residing, based on your consolidated worldwide earnings. In such a case, you may end yourself paying twice as much tax on about the same income. And that is when the DTAA proves to be beneficial to taxpayers.

DTAA’s Advantages

There are several advantages to the DTAA for ratepayers. The main advantage is that you won’t have to pay multiple taxes on the same income. Aside from that, there is a 

  • decreased withholding tax (Tax Deduction at Source)
  • Credits for taxes
  • exemptions from paying taxes

The main goal of DTAA agreements with other nations is to reduce the possibilities for financial fraud for taxpayers in whether if or both of the governments are included in the bilateral or international DTAA agreement.

Taxpayers benefit from reduced withholding tax since they pay less TDS on India’s interest, royalties, and investment income. Certain agreements provide government incentives in the sourcing or nation of operating because then taxpayers do not follow the same rules twice.

Linda Alvarado loves writing about technology and science updates. She also loves to keep her mind and body fresh by doing intense workouts and meditation sessions.