How can NRIs prevent double taxation under DTAA?
Knowing the residency of Individual is crucial to get to know whether the taxation is undergone in India or foreign. It is very simple to see that NRIs and PIOs are planning carefully whether taxation should proceed in India or not to avoid double taxation in both countries.
But due to a pandemic, after March 2020, NRIs and PIOs have decided to stay longer due to circumstances which are not in their control. And this can lead to a change in taxation under Indian Judiciary of their global income.
To overcome this double taxation, countries introduce the DTAA Double Taxation Advance Agreement act. DTAA is a treaty signed between two countries that, through the elimination of international double taxation, promotes the exchange of goods, services, and capital investment between the two countries. And you can claim the taxation of one's non-residential country.
Residential status for tax purpose
Tax Liability of a person in India depends on the residential status of a person. Whereas residential status of a person is the days spent in India during the relevant year or in the 10 years. Most commonly, these people come under three categories: Resident, Non-resident, Resident but not Ordinarily resident.
For consideration, if an NRI is running a business in foreign by staying in India, the amount will undergo taxation in India.
Benefits under DTAA
A treaty called the Double Taxation Avoidance Agreement is one that two countries agree to relieve taxpayers from having to pay taxes more than once. In accordance with DTAA, double taxation is prevented by:
(A) Giving one nation sole taxing authority.
(b) Granting both nations the ability to tax, but with a clause that caps the taxation rate.
(c) Giving residents the ability to claim credits or refunds for taxes they paid in the source nation.
There are regional variations in the DTAA rate chart and associated regulations. This element typically depends on the agreement that the two countries have signed.
In this case, the TDS rates that apply to interest profits can range from 10% to 15%. The imposed rates can be as high as 15%.
In this regard, people should compare the tariffs stated with the countries listed under DTAA India.
Section 89A introduced in Budget 2021
The FM wants to announce regulations in Budget 2021 to alleviate hardship for NRIs caused by double taxation on income accrued in overseas retirement accounts. In order to relieve NRIs from taxation of income from retirement benefits accounts kept with designated nations, a new Section 89A was added to the Income Tax Act.
The Specified persons' who opened a notified account in the nation (notified by the Central Government) while being both a non-resident of India and a resident of that nation are covered by this provision.
The term "notified account" refers to an account opened in the notified country to receive retirement benefits and whose income is subject to receipt-based taxation by that nation rather than accrual taxation.
According to the new clause, such income shall be taxed in the way and during the year that may be specified.
To Sum Up
One who resides in a country with which India has a DTAA is eligible to get benefits under the agreement. His or her tax liability will be constrained by the terms of the treaty with the country of origin.
It should be mentioned that our nation's income tax laws include a vast range of taxation. Subject to following the prescribed procedures, such as submitting the Tax Residency Certificate (TRC) of the other country, etc., NRIs and other RNOR individuals may take advantage of the regulations under section 90 IT Act, 1961.