If an individual earns income in a foreign country, it is generally charged to tax in both the country in which it arises and the country in which the individual resides. This can result in a double incidence of tax on the same income. To protect people from this, the Indian government has entered into a Double Taxation Avoidance Agreement (DTAA) with many countries.
India has signed 85 DTAAs with various countries and has one with the USA. This article covers everything you need to know about the DTAA between India and the USA, its applicability, and tax provisions.
The DTAA or Double Taxation Avoidance Agreement is a treaty signed between two countries to protect the interests of their respective citizens and to make the country an attractive destination for trade and investment.
While a DTAA ensures that the taxpayer does not have to pay taxes in both countries, it does not mean that NRIs can avoid taxes. In simple words, it saves the NRIs from paying taxes in both countries and eliminates the duplicity of paying taxes.
The Double Taxation Avoidance Agreement (DTAA) plays a crucial role in promoting trade and investment between India and the United States. It provides a framework to prevent double taxation of income, fostering economic cooperation. This agreement offers clarity and confidence to businesses and individuals engaged in cross-border economic activities.
Let’s understand how DTAA between India and the USA works with the help of an example -
Mr.Y, who is a resident of India, works in the USA and receives remuneration abroad. Now, the US government levies federal tax on income earned in the US.
This income is also taxable in India as remuneration earned abroad as Mr.Y is an Indian resident.
DTAA is an agreement that is aimed at protecting such people from paying tax on the same sum twice. The relief can be provided by either -
India USA DTAA is applicable to -
DTAA covers the following types of taxes -
In USA: Federal income tax levied by the Internal Revenue Code in the USA
In India: Indian Income tax, including surtax and surcharge
| Sl No. | Country | TDS Rate |
|---|---|---|
| 1 | Armenia | 10% |
| 2 | Australia | 15% |
| 3 | Austria | 10% |
| 4 | Bangladesh | 10% |
| 5 | Belarus | 10% |
| 6 | Belgium | 15% |
| 7 | Botswana | 10% |
| 8 | Brazil | 15% |
| 9 | Bulgaria | 15% |
| 10 | Canada | 15% |
| 11 | China | 15% |
| 12 | Cyprus | 10% |
| 13 | Czech Republic | 10% |
| 14 | Denmark | 15% |
| 15 | Egypt | 10% |
| 16 | Estonia | 10% |
| 17 | Ethiopia | 10% |
| 18 | Finland | 10% |
| 19 | France | 10% |
| 20 | Georgia | 10% |
| 21 | Germany | 10% |
| 22 | Greece | As per agreement |
| 23 | Hashemite kingdom of Jordan | 10% |
| 24 | Hungary | 10% |
| 25 | Iceland | 10% |
| 26 | Indonesia | 10% |
| 27 | Ireland | 10% |
| 28 | Israel | 10% |
| 29 | Italy | 15% |
| 30 | Japan | 10% |
| 31 | Kazakhstan | 10% |
| 32 | Kenya | 15% |
| 33 | South Korea | 15% |
| 34 | Kuwait | 10% |
| 35 | Kyrgyz Republic | 10% |
| 36 | Libya | As per agreement |
| 37 | Lithuania | 10% |
| 38 | Luxembourg | 10% |
| 39 | Malaysia | 10% |
| 40 | Malta | 10% |
| 41 | Mauritius | 7.50-10% |
| 42 | Mongolia | 15% |
| 43 | Montenegro | 10% |
| 44 | Morocco | 10% |
| 45 | Mozambique | 10% |
| 46 | Myanmar | 10% |
| 47 | Namibia | 10% |
| 48 | Nepal | 15% |
| 49 | Netherlands | 10% |
| 50 | New Zealand | 10% |
| 51 | Norway | 15% |
| 52 | Oman | 10% |
| 53 | Philippines | 15% |
| 54 | Poland | 15% |
| 55 | Portuguese Republic | 10% |
| 56 | Qatar | 10% |
| 57 | Romania | 15% |
| 58 | Russia | 10% |
| 59 | Saudi Arabia | 10% |
| 60 | Serbia | 10% |
| 61 | Singapore | 15% |
| 62 | Slovenia | 10% |
| 63 | South Africa | 10% |
| 64 | Spain | 15% |
| 65 | Sri Lanka | 10% |
| 66 | Sudan | 10% |
| 67 | Sweden | 10% |
| 68 | Swiss Confederation | 10% |
| 69 | Syrian Arab Republic | 7.50% |
| 70 | Tajikistan | 10% |
| 71 | Tanzania | 12.50% |
| 72 | Thailand | 25% |
| 73 | Trinidad and Tobago | 10% |
| 74 | Turkey | 15% |
| 75 | Turkmenistan | 10% |
| 76 | UAE | 12.50% |
| 77 | UAR (Egypt) | 10% |
| 78 | Uganda | 10% |
| 79 | UK | 15% |
| 80 | Ukraine | 10% |
| 81 | United Mexican States | 10% |
| 82 | USA | 15% |
| 83 | Uzbekistan | 15% |
| 84 | Vietnam | 10% |
| 85 | Zambia | 10% |
If an individual is a resident in both India and the USA, then the residential status will be determined as follows -
| Situation | Deemed to be a resident in the country selected as per below provisions |
|---|---|
| Has a permanent home in both countries | Closer personal and economic relations. |
| If the above rule is not determinable or there is no permanent home in either state, is there | A habitual home is present |
| Habitual homes in both states | He is a National |
| National of both states or neither of them | Competent Authorities have to determine the residential status by mutual agreement. |
If a resident has income from any immovable property, he/she has to pay income tax in the country where this immovable property is located. It covers the following types of income -
If a resident company pays a dividend to another country’s residence, the earnings from the dividend are taxable in the receiving country.
Here’s an example - Suppose a US-based company pays a dividend to a shareholder residing in India, then such income will be taxable in India.
The dividend can also be taxed in the paying country if the taxpayer resides in the receiving country. In such a case, tax on dividends should not exceed -
If interest income arising in a country is paid to a resident of another country, it is charged to tax in the country where the receiver resides. This income can also be taxed in the country where it arises, and the taxpayer is the receiving country’s resident, then the interest cannot be more than -
The income of a teacher, professor, or research scholar who moves to a different country is exempt from tax if they fulfill both the below conditions -
Non-residents in India are required to report their foreign income and foreign assets in ITR and pay tax on foreign income.
In this section, taxpayers are required to report the income arising or accruing from any source outside of India. The taxpayers have to enter the following information -
As soon as the taxpayer enters details of income into the schedule FSI, the details under schedule TR get auto-populated, and the double taxation relief is reduced from the tax calculation.
If a taxpayer has foreign assets located outside India, they must be reported in the ITR under schedule FA.
Form 67 is an income tax form crucial for claiming foreign tax credits. Form 67 contains the details of foreign income and the tax relief on it. Form 67 can be filed online on the income tax department’s website before filing ITR.
To benefit from the India-US Double Taxation Avoidance Agreement (DTAA), individuals or businesses must follow a clear process. Here’s a step-by-step guide to applying for DTAA benefits:
To claim DTAA (Double Taxation Avoidance Agreement) benefits, taxpayers must adhere to specific procedures to ensure compliance with the tax laws and regulations of both India and the United States. Here’s a detailed step-by-step guide to help individuals and businesses claim DTAA benefits effectively:
In a globalized economy where individuals and organizations are increasingly involved in international transactions, the India-USA DTAA is an indispensable tool to prevent double taxation and ensure you're not paying taxes twice on the same income.
If you are an individual earning foreign income, it is important to disclose your foreign assets and income and file an ITR. Given the complexity of India-USA DTAA, it is common to have doubts. But don’t worry; Book eCA for NRI ITR Filing!
A Double Taxation Avoidance Agreement (DTAA) is a treaty entered into between different nations to prevent the occurrence of double taxation on the same income across borders. In the case of India, DTAA has been signed with 85 countries, aimed at avoiding the imposition of taxes on the same income in both the source and residence countries. This treaty is particularly beneficial for individuals who reside in one country while generating income in another. The DTAA ensures that taxpayers do not face the burden of dual taxation, promoting fairness and facilitating smoother international economic transactions.
In Article 12 of a typical Double Taxation Avoidance Agreement (DTAA), the focus is on the taxation of royalties and fees for included services. The first clause states that royalties and fees for included services, originating in one Contracting State and paid to a resident of the other Contracting State, may be subject to taxation in that other State. This provision addresses the cross-border taxation of income generated from royalties and fees for services, allowing the recipient's state of residence to potentially tax such income. The goal is to establish a framework for the fair and coordinated taxation of these types of income in the context of international transactions.
In accordance with Section 90(4), taxpayers are required to provide their tax residency certificates along with pertinent information in Form 10F to avail themselves of Double Taxation Avoidance Agreement (DTAA) benefits. This provision emphasizes the necessity for taxpayers to submit documentation confirming their tax residency status, along with the specified form containing relevant details, to ensure eligibility for the benefits outlined in DTAA agreements.
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