A DTAA is a bilateral agreement entered into between two countries, in our case, between India and other foreign state. The basic objective is to mitigate, taxation of income in both the countries (i.e. double taxation of same income).
If an individual’s income is chargeable to tax in more than one country, the individual may claim benefit of Double Taxation Avoidance Agreement (if any existing). Where there is no DTAA, section 91 of the Act grants unilateral relief in respect of income which has suffered tax both in India and in a country with which no DTAA exists (i.e. doubly taxed income)
NRI can avail the benefit of lower rate of tax in India as prescribed in the DTAA. Under DTAA between India and US, his interest income will be subject to tax at the rate of 15%. Hence NRI will be able to save excessive tax deduction of 15.9%.
Following documents are required:
1. Tax residency Certificate (“TRC”) from the Government of his country of residence.
2. Form 10F as per Income Tax Rules in certain cases
3. Declaration to the payer (Bank) that the payee is eligible to claim DTAA benefit.
6. Any other document if required by the Bank.