Global investors often find themselves in an unfavorable position of having to face being double taxed – taxed by two different countries on the same income – unless there is a Double Tax Avoidance Agreement in place between the two countries. For example, a company might be subject to taxes in its native or resident country and also in another foreign country where it has raised income by providing labor or via a foreign-invested company that provides goods or services.
Double Tax Avoidance Agreements (DTAA) treaties effectively eliminate double taxation in specific cases by identifying exemptions or reducing the amount of taxes payable. It is, therefore important for foreign investors or expatriates working in India to be aware of any DTAAs that may exist between India and the native countries that apply to them and to understand how these agreements are applied in practice between their native or resident countries and India.
India has one of the largest networks of tax treaties for the avoidance of double taxation and prevention of tax evasion. India has established over 94 comprehensive DTAAs and eight limited DTAAs, compared with China’s 110 and Vietnam’s 80. The purpose of such tax treaties is to develop a fair and equitable system for the allocation of the right to tax several types of income between the ‘source’ and ‘residence’ countries.
A DTAA between India and other countries covers only residents of India and residents of the negotiating country. Foreign or non-resident companies operating in India are subject to withholding tax on their income – dividend, interest, royalty, or fees for technical services, as prescribed under the IT Act. However, foreign companies that are resident in the countries that India has a DTAA with, can claim more beneficial provisions and rates between the IT Act and the DTAA.
List of Double Tax Avoidance Agreements
Below is a comprehensive list of countries that have a DTAA with India and their respective withholding tax rates:
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List of Countries with Whom India Has a Double Taxation Avoidance Agreement (Withholding rates%) |
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|
Recipient country |
Dividend |
Interest |
Royalty |
Technical services |
|
Albania |
10 |
10 |
10 |
10 |
|
Armenia |
10 |
10 |
10 |
10 |
|
Australia |
15 |
15 |
10/15 |
10/15 |
|
Austria |
10 |
10 |
10 |
10 |
|
Bangladesh |
10/15 |
10 |
10 |
NA |
|
Belarus |
10/15 |
10 |
15 |
15 |
|
Belgium |
15 |
15/10 |
10 |
10 |
|
Bhutan |
10 |
10 |
10 |
10 |
|
Botswana |
7.5/10 |
10 |
10 |
10 |
|
Brazil |
15 |
15 |
25/15 |
NA |
|
Bulgaria |
15 |
15 |
15/20 |
20 |
|
Canada |
15/25 |
15 |
10/15 |
10/15 |
|
China |
10 |
10 |
10 |
10 |
|
Colombia |
5 |
10 |
10 |
10 |
|
Croatia |
5/15 |
10 |
10 |
10 |
|
Cyprus |
10 |
10 |
10 |
10 |
|
Czech Republic |
10 |
10 |
10 |
10 |
|
Denmark |
15/25 |
10/15 |
20 |
20 |
|
Egypt/ United Arab Republic |
10/10 |
20 |
25 |
NA |
|
Estonia |
10 |
10 |
10 |
10 |
|
Ethiopia |
7.5 |
10 |
10 |
10 |
|
Fiji |
5 |
10 |
10 |
10 |
|
Finland |
10 |
10 |
10 |
10 |
|
France |
10 |
10 |
10 |
10 |
|
Georgia |
10 |
10 |
10 |
10 |
|
Germany |
10 |
10 |
10 |
10 |
|
Greece |
20 |
20 |
25 |
NA |
|
Hong Kong |
5/10/20 |
5/10/20 |
10 |
10 |
|
Hungary |
10 |
10 |
10 |
10 |
|
Iceland |
10 |
10 |
10 |
10 |
|
Indonesia |
10 |
10 |
10 |
10 |
|
Ireland |
10 |
10 |
10 |
10 |
|
Israel |
10 |
10 |
10 |
10 |
|
Italy |
15/25 |
15 |
20 |
20 |
|
Japan |
10 |
10 |
10 |
10 |
|
Jordan |
10 |
10 |
20 |
20 |
|
Kazakhstan |
10 |
10 |
10 |
10 |
|
Kenya |
10 |
10 |
10 |
10 |
|
Korea |
15 |
10 |
10 |
10 |
|
Kuwait |
10 |
10 |
10 |
10 |
|
Kyrgyzstan |
10 |
10 |
15 |
15 |
|
Latvia |
10 |
10 |
10 |
10 |
|
Libya |
20 |
20 |
25 |
NA |
|
Lithuania |
5/15 |
10 |
10 |
10 |
|
Luxembourg |
10 |
10 |
10 |
10 |
|
Macedonia |
10 |
10 |
10 |
10 |
|
Malaysia |
5 |
10 |
10 |
10 |
|
Malta |
10 |
10 |
10 |
10 |
|
Mauritius |
5/15 |
7.5 |
15 |
10 |
|
Mongolia |
15 |
15 |
15 |
15 |
|
Montenegro |
5/15 |
10 |
10 |
10 |
|
Morocco |
10 |
10 |
10 |
10 |
|
Mozambique |
7.5 |
10 |
10 |
NA |
|
Myanmar |
5 |
10 |
10 |
NA |
|
Namibia |
10 |
10 |
10 |
10 |
|
Nepal |
5/10 |
10 |
15 |
NA |
|
Netherlands |
10 |
10 |
10 |
10 |
|
New Zealand |
15 |
10 |
10 |
10 |
|
Norway |
10 |
10 |
10 |
10 |
|
Oman |
10/12.5 |
10 |
15 |
15 |
|
Philippines |
15/20 |
10/15 |
15 |
NA |
|
Poland |
10 |
10 |
15 |
15 |
|
Portugal |
10/15 |
10 |
10 |
10 |
|
Qatar |
5/10 |
10 |
10 |
10 |
|
Romania |
10 |
10 |
10 |
10 |
|
Russian Federation |
10 |
10 |
10 |
10 |
|
Saudi Arabia |
5 |
10 |
10 |
NA |
|
Serbia |
5/15 |
10 |
10 |
10 |
|
Singapore |
10/15 |
10/15 |
10 |
10 |
|
Slovak Republic* |
10 |
10 |
10 |
10 |
|
Slovenia |
5/15 |
10 |
10 |
10 |
|
South Africa |
10 |
10 |
10 |
10 |
|
Spain |
15 |
15 |
10/20 |
20 |
|
Sri Lanka |
7.5 |
10 |
10 |
10 |
|
Sudan |
10 |
10 |
10 |
10 |
|
Sweden |
10 |
10 |
10 |
10 |
|
Switzerland |
10 |
10 |
10 |
10 |
|
Syria |
5/10 |
10 |
10 |
NA |
|
Tajikistan |
5/10 |
10 |
10 |
NA |
|
Tanzania |
5/10 |
10 |
10 |
NA |
|
Thailand |
10 |
10 |
10 |
NA |
|
Trinidad and Tobago |
10 |
10 |
10 |
10 |
|
Turkey |
15 |
10/15 |
15 |
15 |
|
Turkmenistan |
10 |
10 |
10 |
10 |
|
Uganda |
10 |
10 |
10 |
10 |
|
Ukraine |
10 |
10 |
10 |
10 |
|
United Arab Emirates |
10 |
5/12.5 |
10 |
NA |
|
United Mexican States |
10 |
10 |
10 |
10 |
|
United Kingdom |
10/15 |
0/10/15 |
10/15 |
10/15 |
|
United States |
15/25 |
10/15 |
10/15 |
10/15 |
|
Uruguay |
5 |
10 |
10 |
10 |
|
Uzbekistan |
10 |
10 |
10 |
10 |
|
Vietnam |
10 |
10 |
10 |
10 |
|
Zambia |
5/10 |
10 |
10 |
10 |
|
*The CBDT has clarified that the DTAA signed with the Government of the Czech Republic on the 27th of January 1986 continues to be applicable to the residents of the Slovak Republic. [Notification No. 25, dated 23-03-2015] |
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Tax relief mechanisms
Bilateral relief
When there is an agreement between two countries, relief is calculated according to mutual agreement between such countries. Bilateral relief can be granted by either of the following methods:
|
Method |
Type of Relief |
Pros |
Cons |
|
|
Deduction method |
The domestic country allows its taxpayer to claim a deduction for taxes, including income taxes, paid to a foreign government in respect of foreign source income. |
Saves tax by the amount of Foreign Tax Paid x Domestic Tax Rate. |
This method does not fully avoid double taxation. |
|
|
Exemption method
|
The domestic country provides its taxpayer with an exemption for foreign source income. |
This method is more favorable if tax rates in domestic countries are higher than those in the source country. |
|
|
|
Tax sparing/holiday: |
Various tax exemptions are given to incentivize economic activities, which help the assesses limit the tax burden. |
|
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|
Credit method
|
|
The domestic country gives either full or partial credit for taxes paid in the foreign country. The taxpayer will be taxed on the same sourced income, and the tax is to be determined accordingly – but the taxpayer will pay a lower amount of taxes to the extent of credit available. |
|
|
|
In this method, the taxes paid on the profits from which the dividend is declared can be claimed as a credit against the taxes payable on the dividend income. |
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Unilateral relief for Indian residents
Some countries provide relief of taxes paid in the source country without any treaty between those two countries. This kind of relief is known as unilateral relief. In India, unilateral relief from double taxation is provided to Indian residents under section 91 of the Income Tax Act.
Social Security Agreements
India has concluded various Social Security Agreements (SSAs) to ease the social security obligations on cross-border / international workers. Incentives such as detachment, exportability of pension, totalization of benefits, and withdrawal of social security benefits are available.
India has entered into SSAs with the following 20 countries:
|
Social Security Agreements Concluded with India |
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|
Australia - Operational |
Finland - Operational |
Netherlands - Operational |
|
Austria - Operational |
France - Operational |
Norway - Operational |
|
Belgium - Operational |
Germany - Operational |
Portugal - Operational |
|
Brazil - Non-operational |
Hungary - Operational |
Quebec - Non-operational |
|
Canada - Operational |
Japan - Operational |
Sweden - Operational |
|
Czech Republic - Operational |
Korea - Operational |
Switzerland - Operational |
|
Denmark - Operational |
Luxembourg - Operational |
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