Double Taxation Avoidance Agreement

DTAA: Double Taxation Avoidance Agreement

Life happens just once, death happens just once, love happens just once. Then, why the hell should tax be charged
twice on same income?
Know about Double Taxation Avoidance Agreement (DTAA) now! It is your shield against double taxation of your income

In the early days, every government insisted that they had the right to collect income tax for any income made by people on their shores. However this resulted in double taxation for people who were being taxed both in their home country as well as in their residing country. As this made life difficult for the common man, countries have entered into mutual agreements to avoid this.


To make sure that people do not end up paying taxes on the same income twice (in India as well as in their residing country), the government of India has inked a Double Taxation Avoidance Agreement or DTAA. As per DTAA, those who were filing taxes in India earlier, and qualified as a Non Resident Indian, can save tax deductions through DTAA.

India on its part has Double Taxation Avoidance Agreement with over 85 nations, allowing Indians working in those countries to pay tax only in one country.

Know more about NRI taxation here


Understanding the implications of DTAA:

Take this case

Malini, an IT professional has scheduled her travel to the US for working onsite. Travelling overseas for work was not new for Malini, but this time, with a big project in hand, she was likely to be abroad for more than a year.

While Malini was happy that an onsite work profile would do well for her career, she was confused about the tax aspects, as she would be acquiring a NRI status.

Are NRIs liable to pay taxes for their income earning in India? How are the tax liabilities of NRIs for their assets in India?


Scenario 1: NRIs working for Indian companies

Let us assume that Malini stays in the US for a period more than 182 days in one financial year, making her a Non Resident Indian for the financial year in question. Since Malini is working onsite, she continues to receive her regular income in India in her salary account with TDS deduction. So Malini needs to pay income tax in India.

Now as per USA laws, Malini will need to pay income tax there for her Indian income. Here’s where DTAA comes to her rescue. As TDS is being deducted from Malini’s salary in India, she can get the tax paid in India deducted from her overall tax liability in USA and pay only the remaining amount ( if any applicable) as tax there.

As per the law in USA, anyone living in the country for more than 31 days in one calendar year would need to pay income tax on their global income in USA. But as India has entered into Double Taxation Avoidance Agreement, Malini’s taxation there will be limited as above.

Scenario 2: NRIs working for foreign companies, but earning income from other sources in India

There are many NRIs who are earning interest income, income from assets, house properties etc., in India. The taxation rules under DTAA offer lower taxation for NRIs, if they are paying taxes for income in their resident country.

Deposits of these NRIs come with lower TDS rates as applicable. Dividends earning on equity trading through recognized stock exchanges in India and long term capital gains from equity mutual funds are tax-free. However, short term capital gains will be subject to a TDS of 15 per cent.

There is no reduction of TDS rate as per the DTAA with countries like US and the UK. Therefore, the residents of these countries will be subject to a TDS of 20 per cent for long term capital gains and 30 per cent for short term capital gains. As residents of these countries will have to add these incomes to the total taxable income in their country, they are eligible to claim a credit on the TDS paid in India.

If you are an NRI and are earning rental income in India, this will be taxed only in India. NRIs providing professional services in India will be taxed only in the country of their residence.


How to avail tax benefits under DTAA

To avail benefits under DTAA, NRIs will have to furnish the following documents on an annual basis:

Tax residency certificate: The Tax Residency Certificate or TRC can be obtained from the government of the country in which they reside.

Self declaration-cum indemnity form: You will have to submit a self-declaration or an indemnity form to your bank, which is essentially a declaration that you are a NRI for the period for which you are seeking tax relief.

Furthermore you will need to submit self attested copies of your PAN card, visa and passport, along with any PIO proof, if applicable.

With the world becoming a global village, businessmen and professionals are now travelling all over the globe for work.  DTAA saves people from unnecessary taxation liability in two countries for the same income. DTAA can be used only for residents in those countries that have a dedicated agreement with India.


Non Residents

Deductions and Exemptions for Non Residents

“Har Kisi Ko Mukkamal Jahan Nahi Milta”, par thoda thoda toh mil hi jaata hai. 😉
If you are weak in Hindi, then let me tell you this quote means that you cannot get entire universe, but yeah, you still get something.
Non Residents are allowed most of the deductions and exemptions, at par with resident Indians. However, there are certain deductions, which are not allowed to the Non Residents.

Check your residential status here

Let’s check allowable and non allowable deductions step by step.

Deductions Under Section 80C

Most of the deductions under Section 80 are also available to Non Residents. For FY 2016-17, a maximum deduction of up to Rs 1,50,000 is allowed under Section 80C from gross total income for an individual.

Of the Deductions Under Section 80C, those Allowed to Non Residents are:

  • Life insurance premium payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium must be less than 10% of sum assured.
  • Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children (including payments for play school, pre-nursery and nursery).
  • Principal repayments on loan for the purchase of a house property: Deduction is allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the Non Residents.
  • Unit-linked insurance plan (ULIPS): ULIPS is sold with life insurance cover for deduction under Section 80C. Includes contribution to unit-linked insurance plan of LIC mutual fund e.g. Dhanraksha 1989 and contribution to other unit -linked insurance plan of UTI.
  • Investments in ELSS


Other Allowable Deductions


Deduction from House Property Income for Non Residents

NRIs can claim all the deductions available to a resident from income from house property for a house purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed. You can read about house property income in detail here.


Deduction under Section 80D

Non Residents are allowed to claim a deduction for premium paid for health insurance. This deduction is available up to Rs 30,000 for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children.

Additionally, an NRI can also claim a deduction for insurance of parents (father or mother or both) up to Rs 30,000 if their parents are senior citizens, and Rs 25,000 if the parents are not senior citizens.

Therefore, an NRI will be able to claim a maximum deduction of Rs 60,000 under this Section. Beginning FY 2012-13, within the existing limit a deduction of up to Rs 5,000 for preventive health check-ups are also available.


Deduction under Section 80E

Under this Section, NRIs can claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI’s spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this Section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.


Deduction under Section 80G

Non Residents are allowed to claim a deduction for donations for social causes under Section 80G.
Here are all the donations which are eligible under Section 80G.


Deduction under Section 80TTA

Non-resident Indians can claim a deduction on income from interest on savings bank account up to a maximum of Rs 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office.


Deductions not Allowed to Non Residents

Some Investments under Section 80C:

  • Investment in PPF is not allowed
    (NRIs are not allowed to open new PPF accounts, however, PPF accounts which are opened while they are a resident are allowed to be maintained.)
  • Investments in NSCs
  • Post office 5-year deposit scheme
  • Senior citizen savings scheme


Investment under RGESS (Section 80CCG)

Deduction under Section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced in effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of the amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs.


Deduction for the Differently-Abled under Section 80DD

Deduction under this Section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined in this Section) is not available to NRIs.


Deduction for the Differently-Abled under Section 80DDB

Deduction under this Section towards medical treatment for a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.


Deduction for the Differently-Abled under Section 80U

Deduction for disability where the taxpayer himself suffers from a disability as defined in the Section is allowed only to resident Indians.


Exemption on Sale of Property for an NRI

Long-term capital gains (when property is held for more than 3 years) is taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%.

NRIs are allowed to claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.

Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property.

Read more about Section 54.

Exemption is also available under Section 54EC when capital gains from sale of the first property is reinvested into specific bonds.

  • If you are not very keen to reinvest your profit from sale of your first property into another one, then you can invest them in bonds for up to Rs.50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
  • The homeowner has 6 months’ time to invest the profit in these bonds, although to be able to claim this exemption, you will have to invest before the tax filing deadline.
  • The money invested can be redeemed after 3 years, but cannot be sold before the lapse of 3 years from the date of sale.

The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

Know about NRI taxation here


Non Residents

NRI Taxation: Tax Provisions for Non Residents

World is a global village now. Do you need to be limited to territorial borders to make money? Absolutely not! Non residents or not, doesn’t matter. Go, travel, and earn wherever you feel best. But, just take care of tax implications thereon. You neglect it, and you can be engulfed with penalties and interests. Continue reading “NRI Taxation: Tax Provisions for Non Residents”

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“Bitcoins ko taxable karne ka intezaar toh kai mulkon ki govt kar rahi hai, magar ise tax karna mushkil hi nahin,…ahem ahem….” Continue reading “Tax evasion via Bitcoin: How Bitcoin helps in tax evasion?”

changes in gst

Changes in GST that will impact your business : Complete Guide

Changes in GST that will impact your business

In a major overhaul under the GST, there are changes in GST that will impact your business. It’s important for you to remain updated with them so that you don’t do lose out anything or do any wrong for your business as well as customers.

Bringing smiles for consumers, as many as 178 items of daily use were shifted from the top tax bracket of 28 per cent to 18 per cent, while a uniform 5 per cent tax was prescribed for all restaurants, both air- conditioned and non-AC.

Other compliance changes are:

Revision in Late fee

1) For nil return from 200 Rs per day to Rs 20 per day
2) For others , The late fees Has been revised from Rs 200 to Rs 50 Per day

Revision in Timelines for filling return

GSTR 2 & 3 is abolished till March 2018

For Asseses having Turnover upto Rs 1.5 Cr will file
1- GSTR 3B monthly
2- GSTR 1 – Quarterly

For assesses having Turnover more than 1.5 Cr will file
GSTR 3B- Monthly filling by 20th of the following month.
GSTR 1- Monthly

Revision in overall due dates

Invoices for Nov, 2017 to be filed by Jan 10, 2018

Invoices for Dec, 2017 to be filed by Feb 10, 2018

Invoices for Jan 2018 to be filed by March 10, 2018

GSTR 4 shall have to file there return 24th December 2017. Form for GSTR 4 is already available online

GSTR 5- 11th Dec 2017
Trans 1 – 31st December 2017

Changes in Composition Scheme

COMPOSITION dealer shall have uniform rate of 1% for manufacturer and traders.

COMPOSITION SCHEME will cover services of up to Rs 5 Lakhs in addition to the goods.

Threshold limit for COMPOSITION SCHEME will increase to 2 Cr (Necessary amendments will be made in act).

The aggregate turnover will only cover the taxabale supplies and not exempt supplies for the purpose of computing tax @1%/5%.

ALSO READ : Imprisonment under GST: Offences That May Land You in Jail

* In the current year, all taxpayers will have to file only GSTR-1.

* New GST rates will come into effect from November 15

* Nobody can charge tax over and above MRP

* Taxpayers with annual aggregate turnover more thanRs. 1.5 croreneed to file GSTR-1 on monthly basis as per following frequency:


Due dates for furnishing forms


Credit: PIB


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GST Offences: Penalty Amount for Different Types of Offence

As a business person, you must be aware of the consequences, if you don’t comply with laws. Penalties for different GST Offences have been listed down in section 122 of the GST Act. The amount of penalty varies according to the type and severity of offence. Let’s take a look at different offences and penalties for committing those offences. Continue reading “GST Offences: Penalty Amount for Different Types of Offence”

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Blockchain is the future of finance. Blockchain is a revolution. Blockchain will disrupt the industries and sectors.

Wow, awesome! But, what is it that is causing such crazy hype?! Is investment in Blockchain or Bitcoin safe?

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GST was introduced on July 1. But were people ready to file returns? It takes time to adapt to any sudden change. But, progress should be there. Right? This Form GSTR 3B is a shock absorber towards the sudden change GST brought in.  Continue reading “All about GSTR 3B, the shock absorber for GST regime”