Double taxation is the levy of tax by two or more countries on the same income, asset or financial transaction.
What is double taxation?
Double taxation is the levy of tax by two or more countries on the same income, asset or financial transaction. This double liability is mitigated in many ways, one of them being a tax treaty between the countries in question. Let us try and answer some important queries you might have about such agreements/treaties.
What is DTAA?
A tax treaty between two or more countries to avoid taxing the same income twice is known as Double Taxation Avoidance Agreement (DTAA). This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country. When a tax-payer resides in one country and earns income in another country, he is covered under DTAA, if those two countries have one in place. DTAAs can be either comprehensive, i.e. covering all types of income or specifically target certain types of income. This depends on the types of businesses/holdings of citizens of one country in another. Some of the common categories covered under DTAAs are services, salary, property, capital gains, savings/fixed deposit accounts, etc.
Does India have DTAAs too?
Yes. Being a hub for international investment and also forming a large number of emigrants, India has understood the importance of DTAAs and has actively pursued this matter. For instance, our country has 85 active agreements of this kind. Apart from these separate international agreements, the Income Tax Act in itself provides relief from double taxation. This is covered under Sections 90 and 91. In case of any conflict, the provisions of DTAA will be binding.