India has one of the largest networks of tax treaties for the avoidance of double taxation and the prevention of tax evasion. The country has Double Tax Avoidance Agreements (DTAAs) with 89 countries under Section 90 of the Income Tax Act, 1961.
The purpose of such tax treaties is to develop a fair and equitable system for the allocation of the right to tax different types of income between the “source” and “residence” countries.
A DTAA simply mitigates double imposition of tax when there is a cross national flow of income and ensures tax neutrality. The agreement between the negotiating countries provides specific guidelines on how the income generated in one country and transferred to another is to be taxed by the source and resident country. This ensures protection to taxpayers against double taxation and prevents any deterrence that the double taxation may otherwise promote in the free flow of international trade, investment, and transfer of technology between two countries.
A DTAA between India and other countries covers only residents of India and residents of the negotiating country. Any person or company that is not a resident, either in India or in the other country that has entered into an agreement with India, cannot claim benefits under the signed DTAA.
Withholding Tax Rates Under DTAA
Foreign or nonresident companies operating in India are subject to withholding tax on their income—dividend, interest, royalty, or fees for technical services, as prescribed under the Income Tax Act.
However, foreign companies that are resident in the countries that India has a DTAA with can claim more beneficial provisions and rates between the Income Tax Act and the DTAA.
Below is a comprehensive list of countries that have a DTAA with India and their respective withholding tax rates:
This article was first published on India Briefing, which is produced by Dezan Shira & Associates. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and ASEAN, we are your reliable partner for business expansion in this region and beyond.
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