A Double Taxation Avoidance Agreement (DTAA), also known as a double taxation treaty or double tax agreement, is an agreement between two countries designed to protect against the risk of double taxation where the same income is taxable in both countries.
The agreement effectively overrides the domestic law in both countries and provides mechanisms to give tax relief so that taxpayers do not end up paying more.
What is Double Taxation? Double taxation refers to a situation where income is taxed twice on the same source. This can occur when income is taxed at both the corporate level and the personal level or when income is taxed by two separate countries.
Double taxation agreements are designed to achieve several key purposes:
Prevent Double Taxation: These agreements protect against the risk of double taxation, where the same income is taxable in two different countries.
Provide Certainty for Cross-Border Trade and Investment: They ensure certainty of treatment for cross-border trade and investment, which is essential for businesses and individuals operating across borders.
Prevent Excessive Taxation and Discrimination: Double taxation agreements aim to prevent excessive foreign taxation and other forms of discrimination against business interests, such as higher tax rates, abroad.
Override Domestic Law and Provide Tax Relief: These agreements effectively override the domestic law in both countries and provide mechanisms to give tax relief, ensuring that taxpayers do not end up paying more than they should.
India has one of the largest networks of tax treaties for the avoidance of double taxation, with over 94 comprehensive double taxation avoidance agreements (DTAAs) and eight limited DTAAs.
Some of the countries with which India has a double taxation avoidance agreement include Australia, Austria, Bangladesh, Belarus, Belgium, Canada, China, France, Germany, Italy, Japan, Malaysia, Netherlands, Russia, Singapore, South Africa, United Arab Emirates, United Kingdom, and the United States.
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