If you are going abroad to make a living , leaving behind investments

or other sources of income, you will have to pay tax on these earnings here.
Worse, you will be liable to pay tax on this income in your country of
residence too, as earnings in India will be added to calculate your total
global income and taxed in the country of residence.
To avoid paying tax on same income twice , one can use the
provisions of the Double Taxation Avoidance Agreement (DTAA), a tax
treaty India has signed with many countries.
WHAT IS DTAA
India has signed DTAA with many countries. The aim is to avoid double
taxation of same income. The treaty can be bilateral, that is, apply to only
the two countries in question, or multilateral.
These treaties benefit institutions and individuals who earn in countries
other than their country of residence, provided such an arrangement
exists between their country of residence and the country/countries where
their income sources are.
The benefits of DTAA are lower withholding tax (tax deducted at source or
TDS), exemption from tax, and credits for taxes paid on the doubly-taxed
income that can be enchased at a later date.
India has DTAA with over 80 countries; it plans to sign such treaties with
more countries. The major countries with which it has signed the DTAA are
the US, the United Kingdom, the UAE, Canada, Australia, Saudi Arabia,
Singapore and New Zealand.
Double taxation can be avoided in two ways. One, the resident country
exempts income earned in the foreign country. Or, it grants credits for the
tax paid in the other country.
The rules vary from treaty to treaty. For example, the tax treaty with
Mauritius has zero tax for capital gains on equities, but that with the US
taxes capital gains.
Broadly, under DTAA, the country where the income is generated has the

right to tax it according to its laws. The country of residence gives credits
for this tax and taxes the income at a lower rate.
For example, if India taxes longterm capital gains at 20%, the country of
residence where such gains are taxed at 30% will levy only 10% tax on such
income.
In many cases, if an individual establishes his residency in a country with
which India has signed DTAA, then income generated in India will be taxed
at the rate mentioned in the treaty. For example, if a person is resident of
the US in an assessment year, TDS on interest earned on fixed deposits in
India will be 15% instead of the domestic rate of 30%.

SOURCES OF INCOME
Different incomes are broadly taxed under the DTAA in the following
manner:
Salary:
In India, salary is taxed at three different rates if it is for services rendered
within the country. However, some treaties provide for exemption if the
person stays in India for less than 183 days in a year and the salary is not
borne by an employer or a permanent establishment in India.
An entity is permanent establishment if it has a branch, office, factory or
construction site beyond a certain period or renders service beyond a
certain period.
Income from business/profession:
India taxes income from a business connection in the country. However,
most treaties provide for taxing business profits only when they are earned
from a permanent establishment or a fixed base in India.
Dividends:
Dividends can be taxed by the source country. However, the rate cannot be
more than what is agreed in the treaty. In India, though dividend is not
taxed in the hands of investors, DTAAs are not of much help in such cases.
Interest:
In India, interest earned from bank deposits is added to the income and
taxed according to the person's tax slab. Tax is withheld at 30% on interest
income earned on deposits held by non-residents in India. However, under
DTAAs, interest earned from bank deposits is taxed at a concessional rate
of 10-15%.
Royalty and fee for technical services:
These are taxed at 25% on a gross basis in India. However, DTAAs usually
have a rate of 10-15%.
Capital Gains:
Tax treaties with most countries do not exempt capital gains from tax,
except DTAAs with Mauritius, Singapore and Cyprus. Based on clauses in
the treaty, the resident country gives credits for capital gains tax paid in the
source country.
"Only a few tax treaties (such as Mauritius and some other countries) offer

tax benefit on capital gains. Other tax treaties do offer benefit of lower tax
on interest income, royalties and fees for technical services, but not on
capital gains tax. So, if an NRI is resident of the US, UK or Dubai, and he is
selling shares in India, he does not get any benefit as the tax treaty with
these countries does not provide for tax exemption on capital gains," says
Punit Shah, co-head, tax, KPMG India.
"In case of treaties with certain countries such as Mauritius and Singapore,
capital gains are taxed in the country of residence and, hence, are
frequently used to claim exemption and avoid tax in India," says Amit
Maheshwari, head, direct tax, Ashok Maheshwary & Associates.
Income from immovable property:
Rental income from immovable property in India is taxed in the country
under most tax treaties in view of the fact that the source country has the
first right to tax such income.
In case of sale of immovable property, most DTAAs allow capital gains to be
taxed in the country where the property is situated. Hence, NRIs will be
taxed according to the Indian laws in such a case.

HOW TO APPLY FOR IT

To avail of the benefits of DTAA, the first step is to determine the country of
residence. As mentioned earlier, the rules vary from treaty to treaty. The
first step is to check the DTAA between the countries in question.
If a person has to claim tax exemption or tax credit on the basis of tax paid
in a non-resident country, he/she will have to furnish the relevant
documents to the tax authorities. These include tax residency certificate
(TRC), self-attested copy of PAN card, self-declaration-cum-indemnity
form, selfattested copy of passport and visa, and copy of proof that the

taxpayer is a person of Indian origin in case the passport has been renewed
during the financial year.
The TRC has to be submitted to the deductor (in most cases it is a bank).
TRC is issued by the tax/government authorities in the country of one's
residence to get the TRC.
"In order to avail of the DTTA benefits, NRIs need to apply for TRC from
tax authorities. Once it is done, they can submit a self-declaration form
along with copies of PAN, TRC, passport and visa to the tax authorities,"
says Anil Rego, CEO, Right Horizons.