How NRIs can Claim DTAA benefits while filing ITR

The DTAA, or Double Taxation Avoidance Agreement, is a tax treaty signed between two countries that helps taxpayers avoid paying double taxes on the exact source of income while providing specific benefits under the DTAA. An NRI, PIO, or OCI can relate to the situation when they are mindfully planning their stay in India so that the income does not become taxable in both countries.

Now, the residential status is not always within our control, and due to unforeseen circumstances, the timeline of status can change, which means the income from a single source falls under the taxable category for both countries.

An Understanding of DTAA

This might sound overwhelming. Let us understand it with an easy example:

Mr. A is an NRI living in the US and has earned interest income from bank deposits made in India. Now, if he had not claimed DTAA benefits, then Mr.A might be subjected to a higher tax rate of 30% on this income. However, since a Double Taxation Avoidance Agreement, DTAA tax treaty was signed between India and the US, under the India-US DTAA, Mr. A can claim a 15% reduced tax rate.

Now, such a substantial tax difference means better tax savings. In brief, under the DTAA treaty, NRIs can either be exempt from paying tax twice in one country or, if they have already paid tax twice, claim a foreign tax credit paid in one country against their tax liability in another.

Benefits of DTAA

The Double Taxation Avoidance Agreement is a boon for NRIs, offering significant benefits that provide substantial relief.

Exemption on Income

If you are an NRI earning income in your country of residence, it will be tax-exempt in India, depending on the applicable tax treaty. However, these are types of income that are tax-exempt.

• Interest: Interest income that is earned through deposits held abroad. For example, interest earned on an NRE account can qualify for tax exemption.
• Salary: If you're an NRI earning a salary in your foreign resident country, that income is expected to be taxed in India, according to the DTAA.
• Dividend: If you have earned income through dividends, this might be tax-exempt in India.
• Pension: Depending on the provisions of the DTAA, pension earned abroad can also be exempt from taxes.

Claiming a Tax Credit for Taxes Paid Abroad

Under the DTAA provisions, if you have paid taxes in your country of residence, then you are eligible to claim a tax credit in India. Just ensure that the tax credit is only applicable to income that is taxable in both countries and does not exceed the limit of Indian tax liability on the same income.

Let us understand this with an example: Mr. B is an NRI, and he pays 50,000 INR in taxes abroad on an income source. According to Indian law, taxes on income amount to 60,000 INR. Then, he can claim a credit of 50,000 INR and only pay the remaining 10,000 INR in India.

Steps to Claim DTAA Benefits for NRIs

As an NRI, if you want to claim DTAA benefits, stick to the steps mentioned below

Get a Tax Residency Certificate (TRC)

A Tax Residency Certificate (TRC) is an important document to claim DTAA benefits. This certificate is issued by the tax authorities of the NRI's country of foreign residence. For example, if Mr. C is an NRI residing in the US, then he can get his tax residency certificate from the United States Internal Revenue Service (IRS).

The TRC should include:

• Name of the taxpayer
• Status (a person or a company)
• Nationality of the Person
• Territory or country of residence
• Taxpayer's tax identification number
• Period for which the TRC is applicable
• Address of the taxpayer

Electronically file the Form 10F

If the TRC does not have all the essential details, such as the IAX identification number, nationality, and other relevant information, this information will be filed electronically through Form 10F. You can register on the e-portal even if you do not have a Permanent Account Number (PAN) and make the necessary filing by selecting the option "NRI not holding and not required to have PAN."

Get The Documents Right

Obtain your TRC and file Form 10F, as proper documentation is a non-negotiable requirement for claiming all DTAA benefits. Now, submit these documents before you file your tax return to the Indian tax authorities.

Without providing the necessary documents, you cannot claim DTAA benefits, and your request might be denied.

What is a Foreign Tax Credit

The foreign country allows you to claim the credit for the taxes you have paid in your source country. Now, NRIs, OCI, and PIOs who qualify as Indian residents can claim credit for the taxes they have paid in the foreign country. To do so, simply file Form 67 with the Income Tax Department of India. Also, present the proof of taxes paid in the foreign country to the income tax department.

Savetaxs Will Help You Claim the DTAA Benefits.

As an NRI, if you claim DTAA benefits, you can save big on tax rates and can even avoid overpaying them. All you need to do is obtain the correct documents for the DTAA. Submit TRC, file 10F, and Form 67 on time, and reap the benefits of tax relief under the Double Taxation Avoidance Agreement.

As an NRI or PIO, if you find yourself in a situation where you have paid extra taxes and want to claim credit on it, Savetaxs will help you get that for you.

Our team of experts brings over 30 years of experience and will assist you in claiming your DTAA. We work around the clock across all time zones, so whether you reside in any country, you can contact us, and we will provide you with all the benefits you deserve.