Double Taxation Avoidance Treaties

What do we mean by double taxation?

As the name suggests it means that the same income is taxed more than once i.e. the person earning the income need to pay tax on same income in two or more different countries. Example:  Warren earned income in UK, therefore he need to pay income tax on that income and therefore income tax was deducted on that income in UK (Withholding), however for tax purpose he is a resident in India, so need to pay tax on that income even in India, thus he ends up paying double tax . If the tax rate applicable is 30% you can imagine the net proceeds in hand (around 40%).

What’s the need for double taxation treaties?

To overcome this problem of same income being taxed twice or more, Economies throughout the globe started entering into double taxation avoidance agreements, different countries have different treaties with different countries. Though these treaties are based on UN model of double tax avoidance agreements; there might be slight differences between every treaty. These treaties guide how the income should be taxed if tax is payable in two or more countries, which country should provide the credit for tax, how the benefits are to be taken etc.

India has entered into double taxation treaties with round 100+ countries. These treaties specify the reliefs that can be taken, how they can be taken etc.The treaties has different provisions for income under different heads e.g  Business profits, salary, interests etc (mentioned as articles).