Are you an NRI working abroad? Then this article is a must read.
So you’ve been working outside India in countries such as the United States, United Kingdom, UAE and many more? Are you aware that the tax laws of both, your country of residence and the country where income is earned are applicable? So in retrospect, there’s a good chance that you may be paying taxes in both countries since the taxable income is earned in another country other than your country of residence. If you want to avoid paying double taxes, here are 3 things to consider.
To begin with, let's first understand what a DTAA is.
The Double Tax Avoidance Agreement is a treaty that is signed by two countries. The main objective of the agreement is to make a country more approachable for NRIs to take relief from having to pay taxes numerous times. DTAA does not imply that the NRI can completely avoid taxes, but rather he can avoid paying higher taxes in both countries. It allows an NRI to cut down on their tax implications on the income earned in India. Did that sound greek to you? Relax, let’s take a look at a case study to give you a better understanding.
Mr Sharma, a resident of India works in the United States. For his work, he is given some remuneration in the United States. Now, the US Government levies the applicable Income Tax rules on the income earned in the US. However, there might be a case where the Indian Government also charges income tax on the same amount, i.e. the income earned abroad as Mr Sharma is a resident of India.
To avoid cascading of taxes for Mr Sharma, the Governments of two or more countries may enter into an agreement known as the Double Taxation Avoidance Agreement (DTAA).Thus, by either completely exempting the income earned abroad or by providing credit to the extent of tax already paid in the US, Governments enter into a Double Taxation Avoidance Agreements for providing relief to the tax-payers.
We talked about the United States. What about other countries?
At the moment, India has Double Tax Avoidance Treaties (DTAA) with more than 89 countries around the world. Click here to view if your current country of residence is in the list or not.
But what methods can we use and how do we claim these benefits?
The benefit of DTAA can be used by two methods:
- Tax credit: Tax relief under this method can be claimed in the country of residence.
- Exemption: Tax relief under this method can be claimed in any one of the two countries.
To claim the benefits from the provisions laid under DTAA, the following documents would have to be provided by an NRI individual to the respective deductor.
- Self-declaration cum indemnity format
- Self-attested PAN card copy
- Self-attested visa and passport copy
- PIO proof copy (if applicable)
- Tax Residency Certificate (TRC)
It is recommended to take Professional help if you are not aware of the tax laws in your countries. In case you’d like to minimize your tax implications by claiming the benefits under the DTAA provisions. We are here to help you!