Double Taxation Avoidance Agreement

 

• Double Taxation Avoidance Agreement
• BY Dr. Shashi
• MBA, ACS, Ph.D
• Meaning of Double Taxation
• Double Taxation( International Double Taxation) means taxation of the same income of a person simultaneously in two different countries.
• Rules of Income Taxation

1. Source of income rules
2. Resident Rule

• Double taxation Relief
• Bilateral Relief :
• Models of DTAAs
• Types of DTAAs
• Methods of Relief

1. Unilateral Relief

 

2. Bilateral Relief

• When there is a DTAA agreement(Sec 90):-

·         Empowerment to Central Government to enter into agreement with foreign countries;-

• Granting of Relief
• Avoidance of double Taxation
• For exchange of information
• For Recovery of Income tax

 

 

 

• Classification of Agreement

1. Agreement for Relief from Double Taxation
2. Agreement for avoidance of Double Taxation
3. Important Consideration
4. Applicability of favorable provisions
5. Interpretation of terms not defined

 

• Methods of Granting Relief

1. Exemption Method
2. Tax credit Method

• Exemption Method
• Income is exempted in one of both of countries
• Double taxation agreement with Greece, Libya and U.A.E provides that income from Royalty, Dividend, Interest and fees for technical services shall be taxable in the source country.
• Tax credit Methods
• Income is taxed in both the countries as per treaty and country of residence will allow the tax credit/ reduction for the tax charged in the country of source
• Adoption of Agreement by Central government
• Adoption and implementation of Specified agreement
• Applicability of favorable provisions
• Interpretation of terms which are not defined
• Unilateral Relief
• When there is no DTAA agreement ( Sec 91)
• Normal provisions of unilateral Relief
• Eligible persons
• Conditions
• Amount of relief:-
• At the average Indian rate of tax or the average rate of tax of the said country which ever is lower
• Or at the Indian rate of tax if both the rates are equal
• Example

·         Computation of Taxable income of Mr. Ravi for the assessment year 2016-2017

·         Income from salary ( foreign source) 4,00,000

·         Income from other sources ( In India) 2,67000

·         Gross total Income = 6,67000

·         Less deductions under chapter VI A Nil

·         Tax on 6,67000 = 58400

·         Add education cess & SHEC @ 3% =1752

·         Total tax = 58400+ 1752=60152

·         Relief under sec 91 = 30000

·         Balance tax payable =30000

·         Average rate of tax = Tax on total income/Total income

·         (60152/667000) X 100=9.0183%

·         Average rate of Foreign tax = (30000/400000) X 100= 7.5%

• Other type of unilateral Relief
• Relief in case of Agricultural Income from Pakistan
• Relief in case of share in the Foreign Income of a registered Firm