Income can be subject to double taxation when it is taxed both in the country where it’s earned, often referred to as the ‘source country,’ and in the country where the person earning the income resides, known as the ‘residence country.’ For instance, consider a scenario where a Non-Resident Indian resides in the USA but earns income in India. In such cases, the NRI is liable to pay taxes on their income both in the source country, India, and in their residence country, the USA. Similarly, in property sales cases, the NRI is liable to pay capital gain tax in India and also tax in the residence Country.
A Double Taxation Avoidance Agreement (DTAA) is executed by both countries to mitigate the double or larger tax in the above situation and also to promote and foster economic trade and investment between the two countries.
DTAA makes provision for elimination on double taxation in one of the following manner:
• Granting exclusive right to tax to one of the countries.
• Granting taxing rights to both countries but making a provision for limiting the rate of taxation of each country.
• Granting right to resident of another country to obtain credit for taxes paid in the source country.
We offer DTAA advisory and tax compliance services to both Indian & Multinational Clients. We provide tax management services to NRIs too in this respect.