Introduction: The Double Taxation Trap Every NRI Faces
Picture this:
You’re an Indian software engineer in the US, earning $120,000 annually. You also have:
- ₹50 lakhs in an NRO fixed deposit earning 7% interest
- A rental property in Bangalore generating ₹40,000/month
- Consulting income from an Indian client worth ₹5 lakhs
Here’s your nightmare scenario:
- 🇺🇸 USA taxes your global income (including Indian sources)
- 🇮🇳 India deducts 30% TDS on your interest, rent, and fees
- You end up paying tax twice on the same income
Your annual tax loss? Easily ₹3-5 lakhs or more.
This is where DTAA (Double Taxation Avoidance Agreement) becomes your financial lifeline.
DTAA is a bilateral treaty between India and 90+ countries designed to ensure you don’t pay tax twice on the same income. It’s not a tax-saving loophole—it’s your legal right under international tax law.
Yet, 70% of NRIs either don’t know about DTAA or don’t use it correctly, resulting in:
- ❌ Excessive TDS deductions (30% instead of 10-15%)
- ❌ No foreign tax credit claims
- ❌ Confusion about where to file returns
- ❌ Tax notices from both countries
This guide demystifies DTAA completely—from basic concepts to step-by-step implementation—so you can legally minimize your global tax burden.
1. What is DTAA? (Crystal Clear Explanation)
Simple Definition:
DTAA = A tax treaty between two countries preventing the same income from being taxed twice.
How It Works:
When you earn income in India but live abroad (or vice versa), both countries may claim the right to tax you.
DTAA establishes clear rules:
- Which country has primary taxing rights (source country or residence country)
- What tax rate applies (often lower than domestic rates)
- How to eliminate double taxation (exemption or credit method)
The Golden Rule:
DTAA provisions override domestic tax laws when there’s a conflict—this is enshrined in Section 90 of the Income Tax Act.
2. Why DTAA Matters for Every NRI (Real Impact)
Without DTAA:
- You pay 30% TDS on NRO interest in India
- USA taxes the same interest at your marginal rate (say 24%)
- Total effective tax: 54%+ on the same income
With DTAA:
- India taxes at 15% (India-USA DTAA rate)
- USA taxes at 24% but gives credit for 15% paid in India
- Net effective tax: 24% (saved 30% points!)
Real Money Example:
NRO FD Interest: ₹3,00,000/year
| Scenario | Indian Tax | US Tax | Total Tax | Annual Savings |
| Without DTAA | ₹90,000 (30%) | ₹72,000 (24%) | ₹1,62,000 | — |
| With DTAA | ₹45,000 (15%) | ₹27,000 (net) | ₹72,000 | ₹90,000 |
Over 10 years: You save ₹9 lakhs just on FD interest!
3. The Four Core Benefits of DTAA for NRIs
Benefit 1: Reduced Withholding Tax (TDS)
DTAA prescribes maximum tax rates that India can charge on various incomes.
Standard TDS vs. DTAA Rates:
| Income Type | Default Indian TDS | Typical DTAA Rate | You Save |
| Interest (NRO) | 30% | 10-15% | 50-66% |
| Rental Income | 30% | Varies (credit method) | Variable |
| Royalty/FTS | 10% | 10-15% | 0-50% |
| Dividend | 20% | 15-20% | 0-25% |
| Capital Gains | 20-30% | Per DTAA | Varies |
Benefit 2: Elimination Methods
DTAA uses two methods to avoid double tax:
Method A: Exemption Method
Income is taxed only in one country (usually source country).
Example:
Under India-UAE DTAA, salary earned in UAE is exempt in India even if remitted to India.
Method B: Credit Method
Income is taxed in both countries, but the residence country gives credit for tax paid in the source country.
Example:
Indian rental income taxed at 30% in India → USA gives credit, reducing your US tax liability.
Benefit 3: Clarity on Tax Residency
When both countries claim you as a resident, DTAA has tie-breaker rules based on:
- Permanent home (where you own/rent a home)
- Center of vital interests (where family, economic interests are)
- Habitual abode (where you usually stay)
- Nationality (last resort)
This prevents dual residency nightmares.
Benefit 4: Legally Binding Protection
DTAA is an international treaty ratified by both governments. Tax authorities must honor it—it’s not discretionary.
4. Key DTAA Concepts Every NRI Must Know
1. Tax Residency Certificate (TRC)
What: Official document from your country of residence certifying you’re a tax resident there.
Why: Without TRC, you cannot claim DTAA benefits. Indian banks/tenants/companies will deduct TDS at full rates.
How to Get:
- USA: IRS Form 6166 ($50 fee, 45-day processing)
- UK: HMRC Certificate of Residence (online, free)
- UAE: Federal Tax Authority (FTA) Certificate
- Canada: CRA Certification Letter
- Singapore: IRAS Certificate of Residence
Validity: Usually 1 year; must be renewed annually.
2. Form 10F
What: Self-declaration form submitted to the payer (bank/tenant/company) claiming DTAA benefits.
Contains:
- Name and address
- Tax residency status
- Tax Identification Number (TIN) in foreign country
- Period of residency
- DTAA article being claimed
Format: Prescribed by Indian tax department (easily available online).
3. Beneficial Owner Requirement
You must be the actual economic owner of the income, not just a pass-through entity.
Example:
If you’re holding funds on behalf of someone else, DTAA doesn’t apply.
4. Permanent Establishment (PE)
For business income, DTAA defines when a foreign entity has sufficient presence in India to be taxed.
PE typically includes:
- Branch office
- Factory/workshop
- Construction site >6 months
- Dependent agent
No PE = No Indian tax (generally).
5. Tie-Breaker Rules (Dual Residency)
When you qualify as resident in both countries (common for returning NRIs), DTAA resolves conflict using the hierarchy above.
Pro Tip: Strategic planning around these rules can legally shift your tax residency.
5. Income-by-Income DTAA Treatment for NRIs
A) Interest Income (NRO Accounts)
Typical Sources:
- NRO Savings Account
- NRO Fixed Deposits
- Bonds
- Debentures
Default Treatment:
- TDS: 30% (plus surcharge + cess)
- Rate: Per IT Act
With DTAA:
| Country | Interest TDS Rate |
| USA | 15% |
| UK | 15% |
| UAE | 12.5% |
| Singapore | 15% |
| Canada | 15% |
| Australia | 15% |
| Netherlands | 10% |
| Germany | 10% |
Documents Required:
- Valid TRC from country of residence
- Form 10F duly filled
- Self-declaration to bank
- PAN card
Process:
- Submit documents to bank before interest credit
- Bank will deduct TDS at lower DTAA rate
- Receive Form 16A from bank
- File ITR in India (if total Indian income >basic exemption)
Pro Tip: Submit documents at the start of financial year to avoid refund hassles.
B) Rental Income from Indian Property
Default Treatment:
- Tenant deducts 30% TDS on rent (if >₹50,000/month)
- NRI files ITR and pays balance tax
With DTAA: DTAA doesn’t typically reduce TDS on rental income, but uses credit method.
Step-by-Step:
- Tenant deducts 30% TDS and gives you Form 16C
- You file Indian ITR claiming:
- Standard deduction (30% of rent)
- Home loan interest
- Municipal taxes
- Your actual tax may be much lower than TDS → refund
- When filing return in country of residence (e.g., USA):
- Declare Indian rental income
- Claim Foreign Tax Credit (FTC) for Indian tax paid
- Net additional tax = minimal or zero
Example: Annual Rent: ₹6,00,000
TDS Deducted: ₹1,80,000 (30%)
After deductions, actual Indian tax: ₹90,000
Refund: ₹90,000
US tax liability (after FTC): Minimal
C) Capital Gains (Shares & Property)
DTAA Treatment Varies:
For Listed Shares:
- India-USA DTAA: Taxable only in India (source country)
- Rate: 10% LTCG (>₹1.25L), 20% STCG
- USA gives credit
For Property:
- Taxable in India (where property is located)
- Rate: 20% LTCG with indexation, 30% STCG
- DTAA allows credit in residence country
Key Point: Most DTAAs give primary taxing rights to source country for immovable property.
D) Salary Income
DTAA Principle: Taxed where services are rendered.
Scenario 1: Indian working in USA for US company
- Taxable: USA only
- India: Not taxable (even if remitted)
- DTAA Article: Dependent Personal Services
Scenario 2: NRI working remotely from USA for Indian company
- Taxable: USA (where services performed)
- India: May claim tax (depends on DTAA)
- Complex: Often requires professional advice
Scenario 3: Hybrid (part in India, part abroad)
- Taxable: Proportionately in both countries
- Days calculation matters
E) Professional & Consulting Income
Key Factor: Where services are performed, not where paid.
Example 1:
NRI in UK provides digital marketing services to Indian client remotely.
- Services performed: UK
- Taxable in: UK only
- India: No tax (if no PE)
Example 2:
NRI travels to India for 3-week consulting project.
- Services performed: India
- Taxable in: India
- TDS: 10% (or DTAA rate)
Documents Needed:
- TRC
- Form 10F
- No PE declaration
- Service agreement specifying location
F) Dividend Income
Post-2020 Change: Dividends from Indian companies are taxable in NRI’s hands.
Rate:
- Indian TDS: 20% (plus surcharge + cess)
- With DTAA: 15-20% (depends on country)
Example (India-USA DTAA):
- Dividend TDS: 15%
- USA taxes at marginal rate but gives credit for 15%
- Net effect: USA rate applies
G) Royalty & Fees for Technical Services (FTS)
Common Scenarios:
- Software licensing
- Patent/trademark royalty
- Consulting fees (IT, engineering, design)
- Management fees
Default Rate: 10% (Section 115A)
DTAA Rates:
| Country | Royalty | FTS |
| USA | 15% | 15% (if “makes available”) |
| UK | 15% | 15% |
| UAE | 10% | N/A |
| Singapore | 10% | 10% |
| Canada | 15% | 15% |
| Australia | 10% | 10% |
“Make Available” Clause: Many DTAAs (USA, UK, Canada) require FTS to “transfer technical knowledge” for tax to apply. Pure services may be exempt.
6. How to Claim DTAA Benefits: Step-by-Step Process
Step 1: Determine Your Tax Residency
Are you resident in India or abroad under:
- Indian IT Act rules (182 days / 60-365 days tests)
- Foreign country’s domestic law
- DTAA tie-breaker (if dual resident)
Step 2: Obtain Tax Residency Certificate (TRC)
Timeline: Apply 60 days before you need it (some countries take time).
Required for: All DTAA claims in India.
Step 3: Prepare Form 10F
Download: From incometaxindia.gov.in
Fill accurately:
- Don’t leave any fields blank
- Use passport for ID proof
- Mention correct TIN (SSN, NINO, etc.)
Step 4: Submit Documents to Payer
For Interest (NRO Bank):
- TRC + Form 10F + Self-declaration
- Submit to home branch
- Update annually
For Rent:
- Provide to tenant before payment
- Tenant uses Form 15CA/15CB for remittance
For Professional Fees:
- Submit to Indian company before payment
- They deduct at DTAA rate
Step 5: Monitor TDS Deduction
Check Form 26AS / AIS to verify:
- Correct TDS rate applied
- PAN correctly linked
- Payer details accurate
Step 6: File Indian ITR (If Required)
You must file if:
- Total Indian income > ₹2.5L (basic exemption)
- You want to claim refund
- TDS was deducted
Use: ITR-2 (most NRIs)
Step 7: Claim Foreign Tax Credit in Residence Country
In USA:
- File Form 1116 (Foreign Tax Credit)
- Attach Form 16A from India
- Claim credit for Indian tax paid
In UK:
- Use Self-Assessment Tax Return
- Claim relief under “Foreign Tax Credit Relief”
In UAE:
- No income tax (except corporate tax from June 2023)
- No credit needed for individuals
Step 8: Use Form 67 (If Filing in India for FTC)
If you paid tax abroad and are filing Indian return, use Form 67 to claim foreign tax credit.
Due Date: Before filing ITR.
7. Real-World NRI Scenarios (Case Studies)
Scenario 1: Software Engineer in USA
Profile:
- Resident: California, USA
- Indian income: ₹8L (NRO FD interest)
- US income: $120,000
Without DTAA:
- Indian TDS: ₹2,40,000 (30%)
- US tax on Indian income: ~₹1,60,000 (24%)
- Total tax on ₹8L: ₹4,00,000 (50%!)
With DTAA:
- Indian TDS: ₹1,20,000 (15%)
- US tax: ₹1,60,000 – ₹1,20,000 (credit) = ₹40,000
- Total tax: ₹1,60,000 (20%)
- Savings: ₹2,40,000 annually
Scenario 2: Businessman in UAE with Indian Rental Property
Profile:
- Resident: Dubai, UAE
- Rental income: ₹6L/year from Pune flat
- No other Indian income
Analysis:
- UAE has no personal income tax
- India taxes rental income at slab rates
- TDS: ₹1,80,000 (30%)
Action:
- File Indian ITR-2
- Claim deductions: 30% standard + interest
- Actual tax: ~₹80,000 (after deductions)
- Refund: ₹1,00,000
- No UAE filing required (no income tax)
Result: Net Indian tax ~13% only.
Scenario 3: Returning NRI (Dual Residency Year)
Profile:
- Moved from Singapore to India on Sept 1
- Days in India: 122 days (FY 2024-25)
- Resident in both countries per domestic law
Problem:
- Singapore considers him resident (entire year)
- India considers him resident (>120 days + met conditions)
- Both countries want to tax global income
DTAA Solution (Tie-Breaker):
- Permanent home? Bought flat in India (India wins)
- Center of vital interests? Family moved to India (India wins)
- Result: Resident of India per DTAA
Tax Impact:
- Singapore taxes only Singapore income (employment till Aug)
- India taxes global income from Sept onwards
- No double taxation
Scenario 4: Indian Consultant in UK Serving Indian Clients
Profile:
- Tax resident: UK
- Consulting income from India: ₹15L
- Services performed remotely from UK
- No travel to India
DTAA Analysis:
- Services performed in UK
- No PE in India
- India-UK DTAA: Professional income taxed where services performed
- Result: Taxable only in UK, not India
Documents Needed:
- TRC from UK
- Form 10F
- No PE declaration
- Service agreement showing remote work
TDS: Can claim exemption; Indian client doesn’t deduct TDS.
8. Common DTAA Mistakes NRIs Make (And How to Avoid)
❌ Mistake 1: Not Obtaining TRC
Impact: Bank deducts full 30% TDS.
Solution: Apply for TRC 2-3 months in advance. Keep digital copies.
❌ Mistake 2: Thinking “Money in NRO = Taxed in India Only”
Reality: If you’re tax resident abroad, your global income (including NRO interest) is taxable there too.
Solution: Declare all Indian income in foreign tax return and claim credit.
❌ Mistake 3: Not Filing ITR in India
Why wrong: Even if TDS deducted, you may be due refund OR have reporting obligation.
Solution: File ITR-2 every year you have Indian income.
❌ Mistake 4: Ignoring Form 67 (Foreign Tax Credit)
Impact: Pay double tax—once abroad, again in India.
Solution: File Form 67 online before submitting ITR.
❌ Mistake 5: Assuming All Income Remitted to India is Taxable There
Reality: Taxability depends on where income accrues, not where it’s received.
Example: Salary earned in Dubai, remitted to India = Not taxable in India.
❌ Mistake 6: Using Outdated TRC
TRC Validity: Usually 1 year.
Impact: Bank/tenant rejects, deducts full TDS.
Solution: Renew TRC annually before April.
❌ Mistake 7: Confusing DTAA with Tax Exemption
DTAA ≠ No Tax
DTAA only prevents double taxation. You still pay tax in at least one country.
❌ Mistake 8: Not Checking “Make Available” Clause for FTS
USA, UK, Canada DTAAs: FTS taxable only if “technical knowledge is made available.”
Impact: Many consulting/freelancing services are exempt if properly structured.
Solution: Read DTAA article carefully; consult expert.
9. DTAA Rates: Country-Wise Quick Reference
Popular Countries (NRI Destinations)
| Country | Interest | Dividend | Royalty | FTS | Capital Gains (Shares) |
| USA | 15% | 15% | 15% | 15% | India only |
| UK | 15% | 15% | 15% | 15% | India only |
| UAE | 12.5% | 10% | 10% | — | India only |
| Singapore | 15% | 10% | 10% | 10% | India only |
| Canada | 15% | 15% | 15% | 15% | India only |
| Australia | 15% | 15% | 10% | 10% | India only |
| Germany | 10% | 10% | 10% | 10% | India only |
| Netherlands | 10% | 10% | 10% | 10% | India only |
| Saudi Arabia | 10% | 5% | 10% | — | India only |
| Kuwait | 10% | 10% | 10% | — | India only |
Note: “India only” for capital gains means India has primary taxing rights; residence country may give credit.
10. Advanced DTAA Topics
Topic 1: Most Favoured Nation (MFN) Clause
Some DTAAs (e.g., India-France) have MFN clause: if India signs a better deal with another OECD country, France automatically gets the same benefit.
Recent Development: India’s stance on MFN is evolving post-Nestle case.
Topic 2: Limitation of Benefits (LOB) Article
Prevents treaty shopping—using a third country treaty to avoid tax.
Example: Indian company routing investment through Mauritius to avoid capital gains tax (now plugged).
Topic 3: GAAR vs. DTAA
GAAR (General Anti-Avoidance Rule) can override DTAA if the arrangement’s main purpose is tax avoidance.
Key: Must have commercial substance.
Topic 4: Tax Information Exchange
Most DTAAs have clauses for automatic exchange of financial information between countries.
Impact: Your NRO account details are shared with your country of residence—full transparency.
11. Practical Tips for NRIs to Maximize DTAA Benefits
✅ Tip 1: Keep a DTAA Compliance Folder
Include:
- Current TRC
- Filled Form 10F
- Past Form 16A / 16C certificates
- Self-declarations
- ITR acknowledgments
- Form 67 receipts
Update: Annually before April.
✅ Tip 2: Coordinate Tax Filings
Ideal sequence:
- File India ITR by July 31 (get refund processed)
- Receive Form 16A / 26AS
- File foreign country return (claim FTC)
- Avoid double taxation
✅ Tip 3: Choose FD Tenure Smartly
Since TRC is valid 1 year, align your FD maturity with your TRC cycle to avoid higher TDS.
✅ Tip 4: Structure Consulting Agreements Carefully
If you’re an NRI consultant:
- Clearly state services performed outside India
- Include “No PE” clause
- Invoice from foreign entity
- Use DTAA “make available” exemption
✅ Tip 5: Use Tax Treaties for Remittance Planning
When repatriating sale proceeds of Indian property:
- Understand capital gains tax treatment under DTAA
- Plan remittance to minimize withholding
- Use Form 15CA/15CB properly
✅ Tip 6: Leverage Tax Equalization for Expats
If you’re on international assignment, negotiate tax equalization with employer:
- Employer pays all taxes (India + home country)
- You stay tax-neutral
- DTAA ensures no double tax on employer
12. Recent Updates & Notifications (2024-25)
Update 1: Simplified Form 10F
Income Tax Department simplified Form 10F format—now requires only essential fields.
Update 2: E-filing of Form 67 Mandatory
Cannot file paper Form 67 anymore—must file online on tax portal.
Update 3: Increased Scrutiny on TRC
Tax authorities are verifying TRC authenticity more rigorously—ensure you get official certificates only.
Update 4: UAE Corporate Tax (June 2023)
UAE introduced 9% corporate tax—doesn’t affect individuals yet, but NRI businesses in UAE must comply.
Update 5: India-Mauritius DTAA Amendment
Capital gains tax exemption fully phased out for shares acquired post-2017.
13. When to Consult a Tax Professional
DIY is fine for:
- Simple NRO interest with clear DTAA country
- Single source of Indian income
- Standard salaried NRI
Consult expert for:
- Dual residency situations
- Business/professional income across borders
- Complex capital gains (property, unlisted shares)
- PE implications
- Disputed tax notices
- Multiple countries involved
- Foreign tax credit claims
Cost: ₹10,000 – ₹50,000 for comprehensive NRI tax planning
Savings: Easily ₹1-5 lakhs annually (or more)
14. Conclusion: DTAA is Your Shield Against Double Taxation
As an NRI, DTAA is not optional knowledge—it’s essential financial literacy.
Key Takeaways:
- ✅ DTAA prevents double tax, not all tax
- ✅ TRC + Form 10F are mandatory for benefits
- ✅ Each income type has specific DTAA treatment
- ✅ Credit method and exemption method both save tax
- ✅ File returns in BOTH countries (where required)
- ✅ Maintain documentation religiously
- ✅ Review DTAA articles for your specific country
Action Plan:
- Obtain/renew your TRC
- Prepare Form 10F
- Submit to all Indian payers (bank, tenant, company)
- File ITR in India (if income > basic exemption)
- Claim FTC in country of residence
- Keep DTAA folder updated
With proper DTAA planning, you can legally reduce your global tax burden by 30-50%—that’s real money staying in your pocket.
FAQs: DTAA for NRIs (25 Most-Asked Questions)
Q1: What is DTAA in simple terms?
A: DTAA (Double Taxation Avoidance Agreement) is a treaty between India and another country ensuring you don’t pay tax twice on the same income. It specifies which country can tax what income and at what rate.
Q2: Do I need DTAA if I’m an NRI?
A: Yes, if you earn income from India (interest, rent, capital gains, fees) while being tax resident abroad. DTAA helps you avoid paying tax in both countries or get lower TDS rates in India.
Q3: How many countries have DTAA with India?
A: India has DTAA with 90+ countries including USA, UK, UAE, Singapore, Canada, Australia, Germany, France, Japan, and most major economies.
Q4: What is a Tax Residency Certificate (TRC) and how do I get it?
A: TRC is an official document from your country of residence certifying you’re a tax resident there.
How to get:
- USA: File Form 8802 with IRS, pay $50, receive Form 6166
- UK: Apply online through HMRC (free)
- UAE: Apply through Federal Tax Authority portal
- Singapore: Request from IRAS
- Canada: Request from CRA
Processing time: 15-60 days (plan ahead).
Q5: What is Form 10F and where do I submit it?
A: Form 10F is a self-declaration form containing your details (name, address, residency status, TIN). Submit it to the Indian payer (bank for NRO interest, tenant for rent, company for professional fees) along with TRC.
Q6: Can I claim DTAA benefits without TRC?
A: No. TRC is mandatory to claim DTAA benefits. Without it, the payer (bank/tenant/company) must deduct TDS at full rates per Indian law.
Q7: How does DTAA reduce my NRO FD interest tax?
A: Default TDS on NRO interest is 30%. With DTAA:
- USA, UK, Singapore, Canada: 15%
- UAE: 12.5%
- Germany, Netherlands: 10%
Submit TRC + Form 10F to your bank before interest credit, and they’ll deduct at the lower rate.
Q8: I live in UAE (no income tax). Do I still need to use DTAA?
A: Yes, to reduce TDS in India from 30% to lower DTAA rates (typically 10-12.5%). Since UAE has no personal income tax, the Indian tax is your final tax—DTAA helps minimize it.
Q9: What is the difference between exemption method and credit method in DTAA?
A:
- Exemption Method: Income is taxed only in one country (usually source country). Other country fully exempts it.
- Example: UAE salary exempt in India under India-UAE DTAA.
- Credit Method: Income taxed in both countries, but residence country gives credit for tax paid in source country, avoiding double tax.
- Example: Indian rental income taxed in India; USA taxes it but gives credit for Indian tax paid.
Q10: Do I need to file ITR in India if TDS is already deducted?
A: Yes, in most cases:
- To claim refund if TDS > actual tax liability
- If total Indian income exceeds ₹2.5 lakhs (basic exemption)
- To maintain clean tax compliance
- To carry forward losses
Exception: If your only income is NRO interest under basic exemption limit and correct DTAA rate TDS was deducted, filing is optional but recommended.
Q11: How do I claim Foreign Tax Credit (FTC) in my country of residence?
A:
- USA: File Form 1116 with your 1040 return; attach Indian Form 16A as proof
- UK: Claim in Self-Assessment Return under Foreign Tax Credit Relief
- Canada: Use Federal Foreign Tax Credit (Form T2209)
- Australia: Claim in individual tax return with proof of Indian tax paid
Key: You need proof of Indian tax paid (Form 16A, 26AS, ITR acknowledgment).
Q12: What is Form 67 and when do I need it?
A: Form 67 is filed in India to claim credit for tax paid in a foreign country (reverse FTC—when you file Indian return but paid tax abroad).
When needed:
- You’re resident in India per DTAA
- You paid tax abroad on foreign income
- You’re filing Indian ITR and want to claim FTC
Due date: Before filing ITR.
Q13: Is rental income from Indian property taxable if I live in UAE?
A: Yes, rental income from Indian property is always taxable in India regardless of your residency (source-based taxation).
Tax treatment:
- Tenant deducts 30% TDS (if rent >₹50,000/month)
- You file Indian ITR, claim deductions (30% standard + interest)
- Actual tax usually lower than TDS → refund
- No UAE tax (since UAE has no personal income tax)
Q14: Do I pay tax on NRO interest in both India and USA?
A: Income is declared in both, but you don’t pay twice:
- India deducts TDS at 15% (with DTAA)
- USA taxes your global income including NRO interest
- You claim Foreign Tax Credit in USA for 15% paid in India
- Net result: You pay at US tax rate (India tax gets credited)
Q15: What is the “make available” clause in DTAA?
A: The “make available” clause (found in India-USA, India-UK, India-Canada DTAAs) states that Fees for Technical Services (FTS) are taxable only if the services “make available” technical knowledge, skills, or processes to the recipient.
Practical impact:
- Routine consulting, design, development = Often not “make available” → No TDS
- Training, technology transfer, know-how licensing = “Make available” → TDS applies
Benefit: Many professional/consulting services by NRIs become exempt from Indian tax.
Q16: Can a bank refuse my TRC?
A: Yes, if:
- TRC is expired (>1 year old)
- TRC is not in prescribed format or not official
- Name mismatch with bank records
- TRC is for a different person
Solution: Ensure TRC is current, official, and matches your PAN/bank details exactly.
Q17: I have dual residency (resident in both India and USA). How does DTAA help?
A: DTAA’s tie-breaker rules determine your residency for tax purposes based on:
- Permanent home location
- Center of vital interests (family, economic ties)
- Habitual abode
- Nationality
Once residency is determined, you’re taxed as resident of that country under DTAA (though you may still have filing obligations in both).
Q18: Is dividend from Indian companies taxable for NRIs?
A: Yes (post-2020 change).
Tax treatment:
- Indian company deducts TDS: 20% (or DTAA rate—typically 10-15%)
- You file ITR if total income exceeds basic exemption
- Declare in foreign country return and claim FTC
Example (India-USA DTAA):
- TDS in India: 15%
- USA taxes at your bracket but gives credit for 15%
Q19: How is capital gains on sale of Indian property taxed under DTAA?
A: Most DTAAs give India primary taxing rights on property located in India.
Tax rates:
- LTCG (held >2 years): 20% with indexation
- STCG (held ≤2 years): Per slab (30% for NRIs)
DTAA benefit:
- Your country of residence (e.g., USA) will give you credit for Indian tax paid, avoiding double taxation
- Some DTAAs may have lower rates—check specific treaty
Q20: Can I use DTAA if I’m on a work visa in USA but haven’t got TRC yet?
A: You need TRC to claim DTAA benefits in India. However:
- If you meet USA tax residency tests (Substantial Presence Test), you qualify for TRC
- Apply for IRS Form 6166 immediately
- Until you receive TRC, bank will deduct full 30% TDS
- After receiving TRC, submit to bank mid-year—next quarter TDS will be at lower rate
- Claim refund of excess TDS when filing Indian ITR
Q21: What if I don’t have any income in my country of residence but earn from India?
A:
- If you’re tax resident abroad (e.g., living in UAE with residence visa), get TRC
- Even if UAE has no income tax, TRC helps reduce Indian TDS via DTAA
- You’ll pay reduced Indian tax (10-15% vs. 30%)
- Since UAE has no tax, Indian tax is your final tax—no FTC needed
Key: Residency status matters, not income in that country.
Q22: I returned to India mid-year. How do I handle taxes?
A: Year of return is complex:
- You may be resident in both countries for parts of the year
- Use DTAA to determine final residency (tie-breaker)
- File returns in both countries:
- Foreign country: Jan–date of return (income till that date)
- India: Entire year (with FTC for foreign tax paid)
- Maintain day-count records (182-day rule for Indian residency)
Recommendation: Consult a cross-border tax expert for year of return/departure.
Q23: Does DTAA apply to capital gains on shares?
A: Yes. Most DTAAs give India the right to tax capital gains on Indian shares.
Rates:
- Listed equity (held >1 year): 10% (if LTCG >₹1.25L)
- Listed equity (held ≤1 year): 20%
- Unlisted shares: 20% with indexation
Your country of residence will typically give you credit for Indian tax paid, so you don’t pay twice.
Q24: What happens if I don’t disclose Indian income in my foreign tax return?
A: Risky and illegal.
Consequences:
- Tax evasion in country of residence
- With Automatic Exchange of Information (AEOI), foreign tax authorities receive your Indian income details
- Penalties, interest, possible prosecution
- Loss of tax benefits
Correct approach: Declare all income, claim FTC, stay compliant in both countries.
Still have questions? Contact AdvoFin Consulting for consultation.
📧 Email: info@advofinconsulting.com
📞 Phone: +91-92116-76467
🌐 Website: www.advofinconsulting.com
Disclaimer: This blog is for educational purposes only and does not constitute professional tax advice. Consult a qualified professional for specific situations.
