Do You Know about DTAA?

Any country taxes income on basis of two rules i.e. Residence Rule and Source Rule. Double Taxation is possible when assessee is Resident of one country & derives income from another country. This would be unfair to the assessee.

As a measure to avoid this, Central Govt. of India may enter into an agreement with the Govt. of Foreign Country or Specified territory outside India. Such agreements are known as Double Tax Avoidance Agreements (DTAA).

The agreement is signed to make a country an attractive destination as well as to enable assessee to get relief from having to pay taxes multiple times.

DTAA does not mean that assessee can completely avoid taxes. DTAA also reduces the instances of tax evasion.

It is necessary to have Tax Residence Certificate (TRC) of being resident in any foreign country to obtain relief under DTAA.

In case of any contradiction between the provisions of IT Act, 1961 and DTAA, whichever is more beneficial to the assessee shall apply.

DTAA methods

Tax credit: Tax relief under this method can be claimed in the country of residence.

Exemption: Tax relief under this method can be claimed in any one of the two countries.