Double Tax Avoidance In India

In Today’s modern world of advanced globalization, business is not restricted to a single geographical territory & crosses all borders of the countries. This had emerged a complex world of business along with complex world of Accounting & Taxation. The country has a right to tax on the profits earned in its land by anyone and also to tax the global income of its residence. This leads to taxation of same income more than once in different countries.

To avoid this double taxation of same income, countries are entering into Double tax avoidance agreement ( hereinafter referred to as DTAA) with each other. There is generally bi-lateral agreement which is entered between two countries. However, there are also Multi –lateral agreements which are

They aim at ensuring that the same income is not taxed in both countries, in the hands of the same entity. The DTAA provides that a particular source of income can be taxed by Country A or by Country B, where Country A and B have entered into the DTAA. Or the DTAA can provide for sharing of the income for the purpose of tax levy between the two countries. India has entered into DTAAs with most of its trading partners. But for a proper interpretation of DTAAs it is also essential to understand the very concept of the DTAA and its applicability versus the domestic laws in each

In any taxation system, the residential status of the taxpayer is of crucial significance. Residential status confirms the jurisdiction and the application of taxation accountabilities.

However, in cases, where cross country economic activity is carried out, it is a tricky affair to identify and justify the appropriate jurisdiction of tax authorities. In order to mitigate the hardships of multiple jurisdictions, the Governments enter into bilateral arrangements, which are commonly denoted as “Double Taxation Avoidance Agreements” (DTAA).

DTAA refers to an accord between two countries, aiming at elimination of double taxation. These are bilateral economic agreements wherein the countries concerned assess the sacrifices and advantages which the treaty brings for each contracting nation. It would promote exchange of goods, persons, services and investment of capital among such countries.

Indian Government is actively pushing DTAA negotiations with several countries to help its residents in understanding their tax jurisdictions and accountability towards the appropriate