What is Double Taxation Avoidance Agreement - DTAA?


The Double Taxation Avoidance Agreement is a treaty that two countries have signed. The agreement is signed to make the country more appealing as a tourist destination and to provide NRIs with relief from having to pay taxes several times. The DTAA does not allow NRIs to totally dodge taxes, but it does allow them to avoid paying greater taxes in both nations. Tax evasion is also reduced as a result of the DTAA. The DTAA agreements cover a wide spectrum of income, including wages, business profits, dividends, interest, royalties, and capital gains, among others. These treaties lay forth standards for which countries have the authority to levy taxes on specific forms of income. In most cases, the country where the money is created retains the primary right to tax it, while the country of residency may also collect taxes, albeit at a lower rate.

DTAA Rates 

The DTAA, which India has signed with other nations, establishes a set rate at which tax must be deducted on income received to residents of that country. This means that when NRIs make income in India, the TDS applicable will be based on the rates specified in the Double Taxation Avoidance Agreement with that country. 

How should DTAA be used?

The steps for determining how to implement DTAA are as follows:

  • Tax responsibility under the Income Tax Act: Determine the type of income that is subject to the DTAA and its tax responsibility under the Income Tax Act.
  • Taxation under the DTAA: If the income falls under certain DTAA provisions, it will be taxed in accordance with such articles.
  • Complete the tax liability: Determine whether the IT Act and the DTAA (Treaty Override) is more advantageous using section 90(2).

What are the many types of DTAA?

The following are the various types of Double Taxation Avoidance Agreements that can be entered into based on the level of trade and bilateral ties between nations:

Bilateral Agreements: A bilateral treaty is an agreement between two countries solely. For example, because it was signed by only two countries, India and the United States, the Double Taxation Avoidance Agreement between India and the United States is a bilateral treaty.

Treaties signed on a multilateral basis: Multilateral treaties, such as the APAC or SAARC Convention, are agreements signed by a large number of countries. A multilateral agreement has been signed by various nations in tax agreements, whereby existing treaties have been changed for states who are signatories to the Multilateral Convention.

Limited Agreements: The Limited Double Taxation Avoidance Agreement only applies to a few different types of income. For example, only earnings from the shipping and aviation industries are included in the two countries’ DTAA.

What is Double Taxation Avoidance Agreement (DTAA)?

What are the advantages of DTAA?

The Double Taxation Avoidance Agreement provides various advantages to taxpayers. The biggest benefit is that you don’t have to pay multiple taxes on the same earnings. In some instances, taxpayers may benefit from lower or deductible tax rates under the rules of a Double Taxation Avoidance Agreement. In India, their income from interest, royalties, and other sources is subject to lower TDS levies. Tax Deducted at Source, for example, is applied at a rate of 10% to 15% on the interest that NRIs receive on bank accounts.

The following types of income are covered under India’s Double Taxation Avoidance Agreement (DTAA), which means that non-resident Indians are not required to pay taxes on them twice:

  • Earnings from services provided in India.
  • Earnings from salaries generated in India.
  • Income from Indian real estate.
  • Income from capital gains.
  • Profits from Indian fixed deposits. 
  • Income from a savings account in India.
  • Tax credits.


In conclusion, a Double taxes Avoidance Agreement (DTAA) is a bilateral agreement formed between two countries to avoid or lessen instances of double taxes on the same income. This agreement helps taxpayers by outlining the standards for taxing revenue and clarifying each country’s taxing rights. The DTAA ensures that taxpayers do not have to pay taxes on the same income in both their resident and source countries. It encourages international trade and investment by giving clarity and certainty about tax liabilities. The DTAA is critical in easing cross-border transactions and fostering economic cooperation among countries, while minimising the cost of double taxation on individuals and enterprises.