A Simple Guide to Claim DTAA Tax Benefits in India

With increasing cross-border income and global mobility, taxpayers often face the risk of double taxation, paying tax on the same income in two countries. To avoid this, India has entered into Double Taxation Avoidance Agreements (DTAA) with more than 90 countries. This article explains what DTAA is, who can claim the benefit and the step-by-step procedure to claim DTAA benefits in India, along with key documents and common mistakes to avoid.

What is DTAA?

A DTAA is a treaty between two countries to ensure that income is not taxed twice. DTAA provides relief through:

Exemption method – income is taxed in only one country
Tax credit method – tax paid in one country is allowed as a credit in the other

Under Section 90 and 91 of the Income-tax Act, taxpayers can apply DTAA provisions if they are more beneficial than the Indian tax law.

Who Can Claim DTAA Benefits in India?

DTAA benefits can be claimed by:

Non-Residents (NRIs)
Foreign companies
Foreign nationals earning income in India
Indian residents earning income abroad (credit relief)

Types of Income Covered Under DTAA

DTAA typically covers:

Salary income
Interest income
Royalty and Fees for Technical Services (FTS)
Capital gains
Business profits
Dividend income

Each DTAA specifies tax rates and rules for different income categories.

Step-by-Step Guide to Claim DTAA Benefits in India

Step 1: Determine Your Residential Status

First, determine whether you are:

Resident
Non-Resident (NRI)
Resident but Not Ordinarily Resident (RNOR)

Residential status is crucial because DTAA applicability depends on it.

Step 2: Identify the Applicable DTAA

Check whether India has a DTAA with the country where:

Income is earned or
Tax has been paid

Each DTAA has specific articles governing different income streams.

Step 3: Obtain a Tax Residency Certificate (TRC)

A Tax Residency Certificate (TRC) is mandatory to claim DTAA benefits.

TRC must be issued by the tax authority of the resident country and should include:

Name of the taxpayer
Country of residence
Tax identification number
Period of residency

Without TRC, DTAA benefits may be denied.

Step 4: Furnish Form 10F

Usually, TRC does not contain all the required details as specified by income tax laws; the taxpayer must submit Form 10F electronically on the Indian Income Tax Portal.

Form 10F captures:

Nationality
Tax identification number
Address
Residential status

Step 5: Apply DTAA Rates at the Time of TDS (For Non-Residents)

For income subject to TDS in India, DTAA benefits are usually claimed at the time of deduction by providing:

TRC
Form 10F
No Permanent Establishment (PE) declaration (if applicable)

The payer applies to the lower of the DTAA rate or the domestic tax rate.

Step 6: Claim DTAA Benefit While Filing Income Tax Return

If excess tax has been deducted:

File Income Tax Return in India
Disclose foreign income and taxes paid
Claim DTAA relief under Schedule FSI and Schedule TR

Credit is allowed for tax paid in the foreign country as per DTAA provisions.

Step 7: Maintain Proper Documentation

Keep records such as:

TRC
Form 10F
Tax payment proof
Withholding tax certificates
Agreements/contracts

These documents may be required during scrutiny or assessment.

DTAA vs Income Tax Act: Which One Applies?

As per Section 90(2) of the Income-tax Act:
The taxpayer can apply either DTAA provisions or the domestic law, whichever is more beneficial.

Common Mistakes to Avoid

Not obtaining TRC
Late filing of Form 10F
Incorrect income classification
Claiming DTAA without filing a return
Ignoring Permanent Establishment (PE) provisions

Conclusion

Claiming DTAA benefits in India can significantly reduce tax liability if done correctly. Proper planning, accurate documentation and timely compliance are key to avoiding disputes and penalties.

For complex cross-border transactions, professional advice is recommended to ensure full and lawful utilization of DTAA benefits.