Connect with us +91 966 777 9615
Do you also feel the burden of paying taxes twice on the same income earned for the same purpose, just because of cross-border transactions or international deals?
Then you are not the only one who faces this tax problem;like you, many global investors often encounter this issue and are taxed by two different countries on the same income.
Here is the solution: a treaty known as the Double Tax Avoidance Agreement (DTAA) comes into effect.
So DTAA: Is an agreement between two countries that plays a crucial role in determining how your income is taxed and, more importantly, how much of it you get to keep.
India is among the countries with one of the largest networks of Double Taxation Avoidance Agreements (DTAAs), offering favourable tax rates and provisions designed to protect the taxpayers and promote cross-border investment.
Let’s understand the DTAA first and how it works.
A Double Tax Avoidance Agreement (DTAA) is a tax agreement, also known as a tax treaty, between two or multiple countries to prevent double taxation of income earned in both countries. It is the agreement that states the income of an individual should not be taxed twice, both in their country of origin and in the country in which they reside.
If you’re earning income in one country (called the source country) but you live or are taxed in another country (the resident country), both countries might want to tax that income. DTAA solves this by deciding which country gets to tax what, and how much.
Let’s break it down simply: You earn income in the U.S. and are an Indian resident, or vice versa. Without DTAA, you could be taxed in both countries. But with DTAA in place, the tax burden is adjusted so you don’t pay more than you need to. Sounds useful? It is.
Understanding how DTAA works can help you plan smarter—whether you’re a salaried employee, a freelancer, an NRI, or running a cross-border business.
Double taxation can be avoided in two key ways, often outlined in DTAAs.
Key Differences Between OECD and UN Models
| Feature | OECD Model | UN Model |
| Taxing rights | Favors residence country | Favors source country |
| Withholding tax on dividends | Often lower | Often higher |
| Permanent establishment (PE) | Narrow definition | Broader definition |
| Applicability | Developed economies | Developing economies |
US Model Income Tax Convention– Followed for entering DTAAs with the USA, hybrid approach with features from both OECD and UN models, emphasizes anti-abuse rules, tax transparency, and protecting the U.S tax base. Detailed Limitation on Benefits (LOB) clauses to prevent treaty shopping.
Andean Community Income and Capital Tax Convention– Adopted by member states, namely, Bolivia, Chile, Ecuador, Colombia, Peru, and Venezuela.
India has an extensive network of DTAA agreements in 85 countries, which include all varieties such as Comprehensive, inter-governmental agreements to improve international tax compliance, Limited Agreements, Limited Multilateral Agreements, Specified Associations Agreement, Tax Information Exchange Agreement, and other agreements.
The Income Tax Act has two provisions, section 90 and section 91, that provide relief to taxpayers, saving them from double taxation.
Here, the fact is India gives relief to both kinds of taxpayers, but the rates differ from country to country.
| Country | Dividends | Interest | Royalties | Fees for Technical Services |
| United States | 15% / 25% | 10% / 15% | 10% / 15% | 10% / 15% |
| United Kingdom | 10% / 15% | 10% / 15% | 10% / 15% | 10% / 15% |
| Singapore | 10% / 15% | 10% / 15% | 10% | 10% |
| UAE | 10% | 5% / 12.5% | 10% | Not specified |
| Germany | 10% | 10% | 10% | 10% |
| France | 10% | 10% | 10% | 10% |
| Canada | 15% / 25% | 15% | 10% / 20% | 10% / 20% |
| Australia | 15% | 15% | 10% / 15% | 10% / 15% |
| Japan | 10% | 10% | 10% | 10% |
| Mauritius | 5% / 15% | 7.5% | 15% | 10% |
| Netherlands | 10% | 10% | 10% | 10% |
| South Korea | 15% | 10% | 10% | 10% |
| Malaysia | 5% | 10% | 10% | 10% |
| Russia | 10% | 10% | 10% | 10% |
| Saudi Arabia | 5% | 10% | 10% | Not specified |
| Thailand | 10% | 10% | 10% | Not specified |
| Spain | 15% | 15% | 10% / 20% | 20% |
| South Africa | 10% | 10% | 10% | 10% |
| Switzerland | 10% | 10% | 10% | 10% |
Note: The rates may vary based on specific conditions outlined in each DTAA, such as ownership percentages or the nature of the income. For instance, some treaties offer lower rates if the recipient company holds a significant share in the paying company.
In addition to DTAA, India has signed several Social Security Agreements (SSAs) with 20 countries as of 2024. Much like DTAAs, these agreements are designed to protect the interests of both Indian professionals working abroad and foreign nationals working in India.
Foreign investors (NRIs) can easily benefit from India’s DTAs, which are designed to provide clarity and tax efficiency when investing in or earning income from India.
The treaty does not create any additional tax burden. Yes, they are designed not to increase your tax burden but to reduce it. That’s the true advantage—or the “magic”—of these treaties: they allow taxpayers to legitimately benefit from favourable tax jurisdictions and avoid being taxed twice on the same income.
Due to a lack of awareness about international tax treaties and agreements, many individuals unknowingly become victims of double taxation—paying tax on the same income in two countries. With proper professional guidance, you can navigate these complexities effectively and take advantage of tax relief provisions, ensuring you don’t pay more than you owe.
If you need guidance in interpreting DTAA provisions or assessing your international tax liabilities, our team of seasoned tax professionals is here to assist. With a network of over 400 experts, we offer a client-centric approach that prioritizes accuracy, compliance, and personalized service. Every detail of your crucial tax filings is handled with utmost precision and care.
At Mercurius, we also offer comprehensive end-to-end support for setting up your business in India, including services in accounting, bookkeeping, auditing, taxation, trademark registration, business structuring, and strategic advisory services. If you’d like personalized assistance, feel free to connect with us.
