Mr. X, a resident of India, works in the United States. In return, Mr. X receives some compensation for work done in the United States. Now the U.S. government levies federal tax on income earned in the United States. However, it is possible that the Indian government also levies income tax on the same amount, i.e. remuneration earned abroad, since Mr. X is a resident of India. To save innocent taxpayers like Mr X from the harmful effects of double taxation, governments of two or more countries can enter into an agreement known as double tax evasion treaties (DTAs).

So what are the benefits of such an agreement? Double taxation consists of taxing the same income or property twice for the same purposes, for the same period and in the same tax jurisdiction. If this income is taxed in two countries, the sum of the tax payable will constitute a substantial part of his total income. In 1920, the League of Nations had formed a group of four world-renowned economists, Professor Gijsbert, Professor Luigi Einaudi, Professor Edwin Seligman, and Professor Josiah Stamp, to recommend certain international tax rules regarding the allocation of tax rights in the context of double taxation avoidance in order to avoid multiple taxes on the same income. The Group had recommended that the right of taxation should be divided between the country of residence and the country of origin, while recognizing the rights of taxation. The current rules are undoubtedly an extension of these recommendations. The Double Taxation Convention (DBAA) is an agreement between two countries that the income of non-residents should not be taxed both in their country of origin and in the country where they live. The model forms were first created in 1927 by the Tax Committee of the League of Nations. Its successor, the United Nations Economic and Social Council, published its Model Convention in Geneva in April 1976. Later, the Fiscal Committee of the Organisation for European Economic Cooperation (OEEC) published its draft in July 1963. The Organisation for Economic Co-operation and Development (OECD) was founded in September 1961 as the successor to the OEEC. The OEEC draft was confirmed and named the OECD Model Tax Convention. They were modified in 1974, 1977 and more recently, say, in April 2019 to reflect the latest developments.

The OECD submits its own comments on the terms and technical clauses of the Model Convention. Lord Radcliffe in Ostime v. The Australian Mutual Provident Society reported in (1960) AC 459 (HL) 480 (Eng.) described the language used in DTAAs as “Internal Tax Language”. In general, these agreements will continue indefinitely until they are formally terminated by one of the parties to the agreement. DTAA`s rates and rules vary from country to country. For example, TDS rates for interest earned are charged at 10% or 15%. Now suppose that the agreement stipulates that both India and the UK will levy taxes on this income. In this case, Mr.

Arjun will receive a credit note of the taxes he paid in the UK, which will be deducted when paying taxes in India. It will therefore end up paying taxes in both countries, but at lower interest rates. CDAs can either be comprehensive and aggregate all sources of income or be limited to specific areas, meaning that income from shipping, inheritance, air transportation, etc. is taxed. India currently has DTAA with more than 80 countries, with plans to sign such contracts with more countries in the coming years. Some of the countries with which it has concluded comprehensive agreements are Australia, Canada, Germany, Mauritius, Singapore, Germany, the United Arab Emirates, the United Kingdom and the United States of America. NOTE: A tax exemption/reduction in Iceland under the applicable agreements can only be obtained by requesting the Director of Domestic Revenue for an exemption/reduction on Form 5.42. Until there is an approved exemption with the registered number one, the fees must be paid in Iceland. Yes. As a hub for international investment and education for a large number of emigrants, India has understood the importance of DCIs and has actively addressed this issue. For example, our country has 85 active agreements of this type.

Apart from these separate international agreements, the Income Tax Act itself provides relief from double taxation. This issue is dealt with in Articles 90 and 91. In case of opposition, the provisions of the DBAA are binding. As far as India is concerned, its agreements are based on the model of UN double taxation conventions. As already mentioned, these agreements serve to allocate responsibility between source and place of residence. The agreements themselves provide for a maximum tax rate to be levied in the source country and is generally lower than the tax rate applicable in that country. Chapter IX, sections 90 to 91 of the Income Tax Act 1961 deal with the relief of double taxation. As a result, India had completed the Commission`s procedures with 88 countries, covering all variants such as the Comprehensive Intergovernmental Agreement to Improve International Tax Compliance, Limited Agreements, Limited Multilateral Agreements, Specified Association Agreements, Tax Information Exchange Agreements and other agreements. At first instance, the High Court of the Honourable Andhra Pradesh in cit v.

. . .