Hello Friends,
We will discuss on Double taxation avoidance agreement (DTAA). First we will understand the need of DTAA and its introduction.
NEED AND IMPORTANCE OF DTAA:
a. In modern world, no one stops doing business in his territory only, a businessman always tries to expand his business even outside his residence country.
b. Any country has right to collect tax on profit earned by anyone, and on its global income of resident.
c. Hence, in this situation such person pays tax twice i.e. in residing country and the country where he earned profit.
d. To avoid this situation and to avoid double taxation relief is provided to the person. Relief can be of two ways:
1. Bilateral relief and
2. Unilateral relief
1. Relief: Where countries are entered into Double Taxation avoidance Agreement with each other
2. Unilateral Relief: If there is no agreement between countries, country of residence itself provide the relief.
Bilateral Relief is covered under Section 90 and Section 90A, whereas, Unilateral Relief is covered by Section 91.
* SECTION 90 AND 90A : BILATERAL AGREEMENT
Now in your mind, there may be question arose that why these countries are entering into agreement , Only to avoid double taxation?
---> These countries enter into agreement for following 4 reasons:
1. for granting of relief in respect of income on which tax is paid in both countries
2. for avoidance of double taxation
3. for exchange of information for the prevention of evasion of income tax
4. for recovery of income tax
Is it necessary to act as per DTAA ?
---> No, it is not necessary to act as per DTAA. If Income tax's provision is beneficial to the assessee than DTAA's provision then such person can opt income tax. It is means, provisions which are beneficial to the assessee, such provisions can become applicable for him.
If any meaning of a specific term is not defined in the DTAA then Central Government can mention its meaning through notification in the official gazatte and meaning of such term shall be deemed to have effect from the date on which the said agreement came into force.
As per Section 90A, any specified association in India may enter into an agreement witha ny Specified Associatinin the specified territory outside India. Central Government has right to make provisions as may be necessary and such shall be publish in official gazatte.
*SECTION 90 : UNILATERAL AGREEMENT:
If a resident of India proves that his income which accrued or arose outside India and he has paid tax on the same outside India and that country has no agrrement with India then he shall be entitle to deduction from Indian Income Tax payable by him of a sum calculated on such double taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is lower.
Deduction is lower from the the following :
Tax on Total income in India * Double taxed income
Total income in India
and
Tax paid in foreign Country * Doubly taxed Income
Total income assessed in foreign country
I hope you guys got the concept of DTAA. Small concept but helpful to improve knowledge at initial level. It is just basic. If you stuck somewhere please ask me your querry at siddharthbumb@gmail.com without hesitation.
Thank You.
Regards,
siddharthbumb@gmail.com
CAclubindia
Hello sir, Good Evening Need some clarification on DTAA between India and Singapore 1. The assessee is a resident of india & has salary , longterm & shorterm capital gain from sale of shares 2. During the year he has sold a property in singapore and has incurred a loss can we set off such loss with indian income, 3. If an income is exempt in singapore will it be considered as exempt in India also or will it be taxed as per the provisions of Indian income tax provisions. please clarify on the above doubts