Corporate Employees moving outside India as NRI can claim benefit of DTAA to claim Tax Refund
NRIs can avoid paying double tax as per the Double Tax Avoidance Agreement (DTAA). Usually, Non-Resident Indians (NRI) live abroad, but earn income in India. In such cases, it is possible that the income earned in India would attract tax in India as well as in the country of the NRI’s residence. This means that they would have to pay tax twice on the same income. As a measure to avoid this, the Double Tax Avoidance Agreement (DTAA) was amended.
For e.g. Generally employees working in MNCs in India moves abroad on long term deputation and are on dual payment model of remuneration and are subject to TDS from their India Finance and abroad Finance.
DTAA comes into effect if such country where they reside has taken tax and their tax has been deducted from India
Understanding DTAA
The Double Tax Avoidance Agreement is a treaty signed by two countries. The agreement is signed to make a country an attractive destination as well as to enable NRIs to get relief from having to pay taxes multiple times. DTAA does not mean that the NRI can completely avoid taxes, but it does mean that the NRI can avoid paying higher taxes in both countries. DTAA does allow an NRI to cut down on their tax implications on the income earned in India. DTAA also reduces the instances of tax evasion.
Please take note:
1. Existence of DTAA between two countries and their relevant Article should be read
2. Authentic Proof of paying tax in both the countries should be available
3. There can be scenario where DTAA article is not available then also there are specific clauses for providing relief to assesses
4. This applies irrespective of their Residential Status as per Indian Income Tax Law
DTAA rates
DTAA, signed by India with different countries, fixes a specific rate at which tax has to be deducted on income paid to residents of that country. This means that when NRIs earn an income in India, the TDS applicable would be according to the rates set in the Double Tax Avoidance Agreement with that country.
Countries that India has a DTAA with
India has signed a Double Tax Avoidance Agreement with most major nations where Indians reside. Some of these countries are:
| Country | DTAA TDS rate |
| United States of America | 15% |
| United Kingdom | 15% |
| Canada | 15% |
| Australia | 15% |
| Germany | 10% |
| South Africa | 10% |
| New Zealand | 10% |
| Singapore | 15% |
| Mauritius | 7.5% to 10% |
| Malaysia | 10% |
| UAE | 12.5% |
| Qatar | 10% |
| Oman | 10% |
| Thailand | 25% |
| Sri Lanka | 10% |
| Russia | 10% |
| Kenya | 10% |
Income types under DTAA
Under the Double Tax Avoidance Agreement, NRIs don’t have to pay tax twice on the following income earned from:
- Services provided in India.
- Salary received in India.
- House property located in India.
- Capital gains on transfer of assets in India.
- Fixed deposits in India.
- Savings bank account in India.
If income from these sources is taxable in the NRI’s country of residence, they can avoid paying taxes on it in India by availing the benefits of DTAA.
DTAA methods
The benefit of DTAA can be used by two 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.
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