Guide to Double Taxation Treaty in India

Double taxation is levying of tax by two countries on the same income of an assessee. Double taxation is usually an issue for NRI’s and Foreign Nationals doing business in India. Therefore, the double tax liability of an assessee is mitigated by countries through tax treaties between countries. India has Double Taxation Avoidance Agreements (DTAA) with 84 countries. In this article, we look at the Double Taxation Treaty and Double Taxation Avoidance Agreements in detail.

Double Taxation

NRIs and Foreign Nationals may make again in India and also another foreign country that they belong too. Such persons may find that they are required by domestic laws to pay tax locally on any gain made in any country and also pay tax again in the foreign country, in which the gain was made. Since this creates an unfair system and stifles business investment, many nations have implemented double taxation agreements with each other.

By establishing double taxation avoidance agreements, by paying tax in the country of residence, a person may be exempt from paying tax in the country in which it arises. In some cases, a country in which the gain arises may deduct tax at source (also known as withholding tax) and the taxpayer would receive the foreign tax credit in the country of residence to reflect that tax has already been paid. The methodology for double taxation avoidance varies between country to country. Hence, it is best to refer to the Double Taxation Avoidance Agreement between the concerned countries to know the exact procedures.

India Double Taxation Treaty

India has Double Taxation Avoidance Agreements (DTAA) with 88 countries out of which 86 are in force. For transactions involving persons having interest between countries with which India has a DTAA, there are agreed rates of tax and jurisdiction on specified types of income. Therefore, through Section 90, tax relief is provided for those person residents of a country with which India has signed DTAA.

In case the country in which the person is a resident has not signed a DTAA agreement with India, then Section 91 of the Income Tax Act is used to provide relief from double taxation. Thus, India provides double taxation avoidance relief for both kinds of taxpayers.

Areas covered in the Double Taxation Avoidance Agreements

The following are some of the main areas covered in the DTAAs between countries:

• Methodology for the avoidance of double taxation of income in India or Foreign Country.
• Rate of withholding tax, the procedure for a tax deduction and providing of tax credits.
• Procedure for recovery of income tax under the Indian Income Tax Act and under the corresponding law in force in a foreign country.
• Methodology for exchange of information between the countries to prevent the evasion or avoidance of income tax in India and the foreign country.
• Procedure for investigation of cases of tax evasion or avoidance.

Tax Residency Certificate

The Government of India has made it mandatory for assessee’s to obtain Tax Residency Certificate (TRC) from the country of residence to avail the benefits of the Double Taxation Treaty in India.

DTAA Agreement with Mauritius

India has a comprehensive DTAA agreement with Mauritius wherein the capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a Company incorporated in Mauritius selling shares of an Indian Company will not pay capital gains tax in India. Further, since there is no capital gains tax in Mauritius, the entire gain on capital gains arising from the sale of shares will not be taxed. Hence, this unique feature of the DTAA agreement between India and Mauritius is used by many Foreign Institutional Investors to trade in the Indian stock markets and avoid capital gains tax in India and Mauritius.

India has DTAA agreements that are similar to the India – Mauritius DTAA Agreement with Singapore and Cypriot. Hence, many Indian Companies and Foreign Investors invest through these foreign companies in foreign countries into India.

List of Countries having Double Taxation Treaty with India

The following are the list of countries having the Double Taxation Treaty with India:

1. Armenia
2. Australia
3. Austria
4. Bangladesh
5. Belarus
6. Belgium
7. Botswana
8. Brazil
9. Bulgaria
10. Canada
11. China
12. Cyprus
13. Czech Republic
14. Denmark
15. Egypt
16. Estonia
17. Ethiopia
18. Finland
19. France
20. Georgia
21. Germany
22. Greece
23. Hashemite Kingdom of Jordan
24. Hungary
25. Iceland
26. Indonesia
27. Ireland
28. Israel
29. Italy
30. Japan
31. Kazakastan
32. Kenya
33. Korea
34. Kuwait
35. Kyrgyz Republic
36. Libya
37. Lithuania
38. Luxembourg
39. Malaysia
40. Malta
41. Mauritius
42. Mongolia
43. Montenegro
44. Morocco
45. Mozambique
46. Myanmar
47. Namibia
48. Nepal
49. Netherlands
50. New Zealand
51. Norway
52. Oman
53. Philippines
54. Poland
55. Portuguese Republic
56. Qatar
57. Romania
58. Russia
59. Saudi Arabia
60. Serbia
61. Singapore
62. Slovenia
63. South Africa
64. Spain
65. Sri Lanka
66. Sudan
67. Sweden
68. Swiss Confederation
69. Syrian Arab Republic
70. Tajikistan
71. Tanzania
72. Thailand
73. Trinidad and Tobago
74. Turkey
75. Turkemistan
76. UAE
77. UAR (Egypt)
78. UGANDA
79. United Kingdom
80. Ukraine
81. United Mexican States
82. United States of America
83. Uzbekistan
84. Vietnam
85. Zambia

Click here to access all the DTAAs in detail. For more information, get in touch with an IndiaFilings Business Advisor.