Double Taxation Avoidance Agreement (DTAA) & Foreign Tax Credit (FTC)
Introduction
The Double Taxation Avoidance Agreement (DTAA) is an agreement between India and other countries to avoid double taxation, ensure the exchange of tax-related information, and facilitate tax recovery.
Scope of DTAA
Under Section 90, India can enter into agreements with other countries to:
- Provide relief from double taxation of income taxed in both countries.
- Promote trade and investment by aligning tax laws.
- Prevent tax evasion and misuse of treaty benefits.
- Facilitate tax recovery and information exchange.
Section 90A allows agreements with specified associations for similar purposes.
Applicability of Beneficial Provisions
If the provisions of the DTAA are more beneficial than those in the Income-tax Act, the DTAA provisions will apply. However, provisions under the General Anti-Avoidance Rule (GAAR) will override beneficial DTAA provisions.
Understanding Terms in DTAA
- Terms defined in the DTAA take precedence.
- Undefined terms derive their meaning from the Income-tax Act or relevant government notifications.
Claiming DTAA Benefits
To claim relief under DTAA, a non-resident must:
- Furnish Tax Residency Certificate (TRC) obtained from his home country.
- FileForm 10Felectronically.
- Maintain supporting documents for claims.
To claim relief under DTAA in a foreign country, a resident can make an application in Form No. 10FA electronically to the assessing officer to obtain a Tax Residency Certificate. The tax residency certificate to a resident person is provided in Form No. 10FB