How DTAA Can Give Benefit to NRI on Double Taxation in India

The status of the residential person poses an essential role in finding out the method of his or her income that shall come under the tax for that year in India. Moreover, non-resident Indians NRIs and Persons of Indian Origin (PIOs) are very careful in preparing their stay in India for the specific year so that their outer income does not fall under the taxation part in India.

But from March 2020 various NRIs and PIOs are forced to spend more time in India because of the uncontrollable situation towards their travel limitation because of COVID-19 that is spread out all across the world. Thus it pointed towards the change in their residential status in India heading for the intentions of the taxes.

Tax Purposes of Different Residential Segments

The tax liability of an individual beneath the new Indian Income-tax rule for NRI 2024-25 is upon the grounds of the residential status towards the concerned financial year. The residential status of the specific person is dependent on the grounds of the stay days in India in the concerned year and the previous 10 years. On a wider picture, there are 3 segments resident, non-resident, and resident but not ordinarily resident (RNOR).

There is a difference in the scope of the income taxable in India that relies on the residential status. It is the most expanded towards the case of the non-resident whose worldwide income is taxable in India and is the closest towards the non-resident in which the income obtained or the income raised in India is to be taxed in India. Hence a non-resident is not needed to furnish the tax upon his income obtained from outside India, despite income via business controlled in India or profession settled in India comes under the tax.

Hence any NRI or PIO shall shift as a resident or RNOR because of his stay in India then the person’s outer income does come under the tax in India. Despite the person coming beneath the RNOR towards the specific year, his income via that overseas business might become taxable in India upon the grounds of the trade regulated through him via India when he used to stay in India.

DTAA Advantages for NRI

Inside the Double Taxation Avoidance Agreements (DTAAs) or bilateral tax treaties, India has now entered along with all the major countries. The name, it implies that the normal intention of these treaties is to remove the load from the double taxation on the assessee in more than one jurisdiction Normally the tax treaties furnish unlimited taxation rights towards the country in which the individual is the tax resident called residence country and furnishes only bound taxation rights to the country where the source of income lies (source country). Double taxation seeks to eliminate through rendering foreign tax credit (FTC) in the residence country.

As per the law of every country, the same treaties must furnish the residential status that is needed to be revealed upon the grounds of the domestic laws. For example, a PIO might qualify as a tax resident of India because the time duration of his or her stay in India is more than the specified limit. During the same time, he or she might indeed undergo citizenship as a tax resident of the US. In this situation, a tiebreaker rule below the India-USA DTAA will get affected and this might occur if the individual has passed as a tax resident of the US.

The specific person who comes under the tax resident where India possesses DTAA could avail the advantage beneath the deal and his/her liability to taxation in India shall get restricted to the extent of taxing rights to the source country below the treaty. This must be displayed that if the scope of the taxation beneath the Indian income tax law gets expanded the specific person can avail the advantages of the treaty by virtue of section 90 of the Indian Income-tax Act, 1961, directed to procedural compliances similar to the submission of Tax Residency Certificate (TRC) of the other country, etc.

On another side when the person qualifies for the tax resident of India then both the conditions of the Indian domestic law along with the concerned treaty, thus India shall pose out the residual powers of the taxation with respect to the limited rights provided to the additional country beneath the treaty.

All About Foreign Tax Credit

After an NRI or PIO gets qualified for the Indian tax resident then he or she shall be liable to avail of the credit of taxes paid in other foreign countries. As per rule 128 of the new Income Tax Rules for FY 2024-25, any individual filing the Income Tax Return in the Indian region would be applicable with multiple conditions and compliance stated. FTC is permitted towards the year when the responding income is subjected to tax. A person is needed to furnish the particulars of the Foreign Tax Credit (FTC) availed in the mentioned Form 67 including the documents to assist the payment or deduction of the tax in overseas countries.

To avail of the FTC, a person is required to pose a certificate or statement mentioning the type of income and the tax deducted from them or filed through the taxpayer. This can be availed via the mentioned objects.

• Via the tax authority of the country or the designated territory outside India and
• Through the individual liable towards deduction of before-mentioned tax and
• Signed by the taxpayer including with the acknowledgement of online payment or bank or challan towards the tax payment where the payment has been furnished through the taxpayer or proof of deduction in which the tax has been deducted.

Only the taxes furnished by an FTC are permitted in the multiple regions as per the applicable DTAA and any more foreign tax shall be ignored. Indeed FTC shall be restricted to a limit of the taxes filed in India.

How NRIs Can Claim Benefits Under DTAA

DTAA is signed through India within distinct countries that set up a particular cost on which the tax is to get deducted from the income furnished to the residents of that specific country. It points out that when the NRIs earn an income in India then the subjected TDS does come beneath the rate mentioned inside the double tax avoidance agreement in that country. 

India poses DTAA within countries such as

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%

India has signed a Double Tax Avoidance Agreement through the majority of countries in which the Indians live. some of these are the countries:

Beneath DTAA There are Various Kinds of Income

Beneath the double tax avoidance agreement, there is no need to pay the tax two times by NRIs upon the mentioned income earned through:

• 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 the income through these sources is under tax compliance in the country where an NRI lives, then tax filing can be avoided in India by claiming the advantages of DTAA.

Conclusion: There are various hurdles that are caused by pandemics among the people are various and consist of various financial and compliance responsibilities because of unpredicted tax situations. Towards some of the overseas income of the NRIs or PIOs, there might be a temporary transfer of the tax base in India. The prevention available beneath the domestic laws and international treaties shall need to be discreetly investigated and claimed to lessen the responsibility of double taxation or to prevent conflicts within the tax council.