If my income is taxed abroad as well as in India can I claim any relief on account of double taxation?
In many cases, if you are living abroad and have an income source in India, the income attracts taxes in both the country and the place you live. Which is why the Government of India has a Double Tax Avoidance Agreement (DTAA) Policy, through which you can avoid paying taxes twice.
The DTAA is a treaty signed between two countries. It enables NRIs to get relief from paying taxes twice. It is often a misconception that under DTAA you can altogether avoid paying taxes, however, it is not the case. DTAA allows a rebate on the taxes, not a complete deduction, which means NRIs can reduce their tax implications on the income earned in India.
Incomes on Which DTAA Allows Tax Rebate
Under the Double Tax Avoidance Agreement or DTAA, NRIs can claim a deduction of paying taxes twice on the income earned from the following sources:
• Salary received in India
• Fixed deposits in India
• Capital gains earned on the transfer of assets in India
• House property located in India
• Services provided in India
• Savings bank account in India
If income from these sources is taxable in the country where you are currently residing in, then you can claim relief on paying taxes in India by availing the benefits provided under DTAA.
How to Use Benefits Under DTAA
The following methods can be used to claim benefits provided under DTAA:
• Exemption: Tax relief under this method can be easily claimed in any one of the two countries (country you reside in and India)
• Tax Credit: Tax relief under this method can only be claimed in the country you are living in.
The double taxation avoidance agreement carried out by India with other countries fixes a specified rate according to which TDS must be deducted on the income paid to residents of that country. Which means if you are earning an income in India, the TDA will b charged according to rates set under DTAA with that country.