September 17

Double Taxation Avoidance Agreement Under Income Tax Act

INIs can avoid the payment of double taxation under the Double Tax Avoidance Agreement (DBAA). Normally, non-resident Indians (NRIs) live abroad, but earn income in India. In such cases, it is possible that the income received in India may be taxed both in India and in the country of residence of the NRA. This means that they would have to pay two taxes on the same income. To avoid this, the Double Taxation Convention (DBA) has been amended. Under general conditions, the tax rate under the tax treaty is often lower than the national rate set by the law of the host country. Take as an example Russia, in Russia, the standard withholding tax rate for interest and royalties under national law is both 20%. According to the latest tax treaty that China has signed with Russia, the withholding rate for interest 0 and the withholding rate for royalties is 6%. It is obvious that this can reduce the tax costs of companies, increase the will for “globalization” and the competitiveness of domestic companies and bring good.

[21] A DBA (Double Taxation Convention) may require that the tax be levied by the country of residence and exempt in the country where it is produced. In other cases, the resident may pay a withholding tax to the country where the income was born and the taxpayer benefits from a compensatory foreign tax credit in the country of residence to reflect the fact that the tax has already been paid. In the first case, the taxpayer (abroad) would declare himself a non-resident. In both cases, the DBA may provide for the two tax authorities to exchange information on these returns. Through this communication between countries, they also have a better view of individuals and companies trying to avoid or evade taxes. [4] Under the 2013 Finance Act, a person is not entitled to relief from the double taxation convention, unless he presents a certificate of tax residence to the person concerned. To obtain a certificate of tax residence, an application in Form 10FA (application for a certificate of residence for the purposes of a convention under sections 90 and 90A of the Income Tax Act 1961) must be submitted to the income tax authorities. . . .

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