Dtaa - basic

@*CS Siddharth Bumb. * (B.Com, CA Final, CS ) (5270 Points)

16 February 2014  

Hello Friends,

We will discuss on Double taxation avoidance agreement (DTAA). First we will understand the need of DTAA and its introduction.



  • 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.

  • Any country has right to collect tax on profit earned by anyone, and on its global income of resident.

  • Hence, in this situation such person pays tax twice i.e. in residing country and the country where he earned profit.

  • 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. Bilateral 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.



  • 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

  5. 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.


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




        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.



Siddharth Bumb