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NRI: What is DTAA (Double Taxation Avoidance Agreements)?

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DTAA or Double Taxation Avoidance Agreement is a tax treaty that India has with 65 other countries. In plain language, what this means for an NRI is, if he/she is a resident in any of those 65 countries and is paying taxes on the income earned in that country, then he/she is eligible for a lower deduction of tax on income earned in India in that financial year.

These agreements give the right of taxation in respect of the income of the nature of interest, dividend, royalty and fees for technical services to the country of residence. However, the source country is also given the right but such taxation in the source country has to be limited to the rates prescribed in the agreement. The rate of taxation is on gross receipts without deduction of expenses.

Excerpts from the Indian Income Tax website: The agreements allocate jurisdiction between the source and residence country. Wherever such jurisdiction is given to both the countries, the agreements prescribe maximum rate of taxation in the source country which is generally lower than the rate of tax under the domestic laws of that country. The double taxation in such cases are avoided by the residence country agreeing to give credit for tax paid in the source country thereby reducing tax payable in the residence country by the amount of tax paid in the source country

Today for an NRI, tax is withheld on the interest income on deposits and accounts at the rate of 30%. Under DTAA, basis the documentation that is submitted to the authorized dealer, the NRI can benefit from a lower incidence of tax on his interest income. This ensures that since he is paying taxes on the income in his resident country as well, the incidence of tax on the source country is lower, thereby encouraging investments in the source country viz. India.

Simplifying, this means that if you are a US resident paying taxes in the US and qualifying as an NRI/PIO as per the FEMA definition, then you can submit the requested documents by your bank/AD and avail a lower withholding of tax. You will be taxed @ 15% for the interest income earned on your NRO account/deposits rather than the standard 30%.

Each bank will have its own process and documentation that it seeks from the NRI to determine eligibility for the DTAA benefit. This is beneficial to ensure that the rate under DTAA is applied on your TDS withholding. In case you have not claimed for this benefit with the bank, you are eligible to seek a refund from the revenue authorities under this treaty.

If you have been eligible but have not claimed your benefit in this year, to get a refund for past periods, you may have to place a refund request with the Indian Income Tax authorities.

One important aspect for claiming DTAA, is that the Permanent Account Number (PAN) has been made mandatory to avail the benefit of lower withholding under DTAA. Also important to note, there is an expiry date on the documentation and the same needs to be refreshed every financial year with the bank/AD to ensure validity.

With the current financial year ending on Mar 31st, it will be a good idea to connect with you bank and check on the requirements/renewal of the DTAA facility for your NRO accounts/deposits.

One important thing to keep in mind is that with the Direct Tax Code coming into picture, effective April 2012, submission of a TRC (Tax residency Certificate) issued by the revenue authority in the country of tax residency has been made mandatory. While this will make the documentation process uniform across banks, it will be cumbersome process for the customer.

Details on the treaty with the countries can be referred to on the link below.

Name of the Country Tax withholding Rate (%)
Armenia 10
Australia 15
Austria 10
Bangladesh 10
Belarus 10
Belgium 15
Botswana 10
Brazil 15
Bulgaria 15
Canada 15
China 10
Cyprus 10
Czech Republic 10
Czechoslovakia 15
Denmark 15
Finland 10
France 10
Germany 10
Hungary 10
Iceland 10
Indonesia 10
Ireland 10
Israel 10
Italy 15
Japan 10
Jordan 10
Kazakhstan 10
Kenya 15
Korea 15
Kuwait 10
Kyrgyzstan 10
Luxembourg 10
Malaysia 10
Malta 10
Mongolia 15
Montenegro 10
Morocco 10
Myanmar 10
Namibia 10
Nepal 15
Netherlands 10
New Zealand 10
Norway 15
Oman 10
Philippines 15
Poland 15
Portugal 10
Qatar 10
Romania 15
Russia 10
Saudi Arabia 10
Serbia and Montenegro 10
Singapore 15
Slovenia 10
South Africa 10
Spain 15
Sri Lanka 10
Sudan 10
Sweden 10
Switzerland 10
Syria 10
Tajikistan 10
Tanzania 12.5
Thailand 25
Trinidad & Tobago 10
Turkey 15
Turkmenistan 10
Uganda 10
Ukraine 10
United Kingdom of Great Britain 15
United Arab Emirates 12.5
United States of America 15
Uzbekistan 15
Vietnam 10
Zambia 10

Click here to see the latest list

Download DTAA form- State bank of India
Download DTAA form- HDFC Bank


Written by Daisy Fernandes

( Courtesy: Investment yogi )

Note: To avail benefit of lower rates of tax as per double taxation avoidance treaty entered in by India, NRIs need to submit the Residency Certificate issued by Tax Authorities of the country of his residence. These documents should be submitted to the designated bank branch at the time of opening the bank account or subsequently. New TDS rate shall be applied only after the acceptance of the Residency Certificate by the designated bank. Use DTAA forms to submit this details and get tax benefits. You can download it from respective bank websites

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