Introduction

The Double Tax Avoidance Agreement (DTAA) is a bilateral agreement between two countries, aimed at preventing double taxation and promoting economic trade and investment.

Without such agreements, taxpayers may be liable to pay taxes in two different countries for the same income, creating unnecessary financial burdens. Most countries offer unilateral relief to mitigate such situations, but DTAA provides a more structured approach to eliminate tax obstacles that hinder global trade, services, and capital movement.

Why is DTAA Needed?

DTAA is essential due to differences in the taxation rules of various countries. Double taxation occurs when:

• Income is taxable in both countries (home and foreign country).
• Income is exempt in both countries (leading to tax evasion).
• A credit system is applied, where tax paid in one country is credited against the tax liability in another.
   

This usually happens due to overlapping tax laws and differences in the residential status or the accrual basis of taxation.

Relief Against Double Taxation

India provides relief against double taxation under Sections 90 and 91 of the Income Tax Act:

1. Unilateral Relief (Section 91)

Even if India does not have a DTAA with a particular country, an individual or company may still be eligible for tax relief, provided:
✔ The individual/company was a resident of India in the previous financial year.
✔ The income was taxable in both India and the foreign country.
✔ The tax was paid under the statutory laws of the foreign country.

2. Bilateral Relief (Section 90)

If India has a DTAA with another country, the government provides tax relief based on mutually agreed terms under the treaty.

Types of DTAA

DTAA agreements can be Comprehensive or Limited:

1. Comprehensive DTAA
 

Comprehensive DTAAs cover all types of incomes and sometimes include wealth tax, gift tax, and other indirect taxes. India has comprehensive agreements with countries such as:

• USA, UK, UAE, Russia, Singapore, Switzerland, Saudi Arabia, South Africa, Thailand, Vietnam, and more.
   

2. Limited DTAA

Limited DTAA applies only to specific types of income, such as income from airlines and merchant shipping. Countries with limited agreements include:

• Afghanistan, Bulgaria, Ethiopia, Iran, Kuwait, Lebanon, Pakistan, Oman, and Uganda.
   

Claiming DTAA Benefits for International Businesses

For non-residents, tax liability must be examined under both:
✔ Income Tax Act, 1961
✔ DTAA provisions

A taxpayer can choose the more beneficial option between the two. With globalization, foreign income is increasingly taxed in multiple jurisdictions, making foreign tax credits crucial. DTAA helps businesses and individuals avoid excessive tax burdens while maintaining compliance.

Expert DTAA Advisory by Naveen Pandey and Associates

At Naveen Pandey and Associates, we specialize in DTAA consultation and global tax compliance. Our team assists companies and individuals in:

✔ Understanding DTAA benefits
✔ Optimizing international tax structures
✔ Foreign tax credit planning
✔ Filing tax returns for cross-border transactions
✔ Ensuring compliance with Indian tax laws

📩 For personalized DTAA solutions, contact us at [email protected] today!