image

India's Double Taxation Avoidance Agreements

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. 

WATCH

Profit Repatriation from India - Tax Implications, DTAAs, and Transfer Pricing Provisions

This video is unavailable in your region. Please enable VPN to view

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:

List of Countries with Whom India Has a Double Taxation Avoidance Agreement (Withholding rates%) 

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

Chile

10

10

10

10

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

Iran

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]

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.

 

 

 

 

 

 

 

 

Credit method

 

  • Underlying credit:

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.

 

 

  • Ordinary credit:

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.

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

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

 

CHANGE SECTION

Events in India

How can we help?

Hi there!

Let me show you how I can be of assistance.

I can help you find and connect with an advisor, get guidance, search resources, or share feedback about this site.

Please select what you’d like to do:

Typing...
How can we help?

Hi there!

Our contact personel in Italy is:

profile Alberto Vettoretti

Please select what you’d like to do:

Typing...
Let us help you advance in Asia

Typing...
Speak to an expert!

Please share a few details about what guidance you seek. We can have a suitable advisor contact you within one business day.

Security Check
Back to top