- 5 min
How Double Taxation Avoidance Agreements (DTAA) Affect NRI Investments
Written by
Kashish Manjani
- Blog
- Financial Planning
Date
13 Nov 2025
Kashishmanjani
@Kashishaikeyam
YouTube
Kashishaikeyam
Introduction: Understanding Double Taxation for NRIs
You worked hard in the US. You paid taxes there. Now India wants its share too—on the same income.
This is double taxation. It hits NRIs earning salary abroad, renting property in India, or investing in US stocks. The same rupee gets taxed twice. Once where you earn it. Once where you’re a resident.
Double Taxation Avoidance Agreements (DTAA) exist to stop this. These treaties between countries ensure you don’t pay tax twice on the same income. They provide double taxation relief through structured mechanisms that protect your hard-earned money.
Understanding what is DTAA can save you thousands in taxes. It clarifies how Indian tax on foreign income works when treaties apply. For NRIs managing global portfolios, DTAA isn’t optional knowledge—it’s essential.
What is a Double Taxation Avoidance Agreement (DTAA)?
A double taxation avoidance agreement is an income tax is treaty between two countries. It prevents the same income from being taxed in both nations.
Under the Income Tax Act, DTAA serves one purpose: tax fairness. You pay tax once. Either in India or your country of residence. The treaty determines which country has taxing rights based on the type of income.
There are two types of double taxation avoidance agreement mechanisms:
Exemption Method: Income taxed in one country gets full exemption in the other. If you pay tax on salary in the US, India exempts that same salary from taxation.
Tax Credit Method: You pay tax in both countries but claim credit for foreign tax paid. If the US taxes you 30% and India’s rate is 35%, you pay only the 5% difference to India.
DTAA appears in competitive exams, too. The double tax avoidance agreement UPSC syllabus covers these treaties under international economics and fiscal policy.
The core benefit? You keep more of what you earn.
How DTAA Works: Relief Mechanisms and Tax Credit
DTAA relief isn’t automatic. You must claim it.
Here’s how it works. Suppose you earn $10,000 from US stocks. The US taxes it at 25%. You pay $2,500 there. Now India wants to tax the same $10,000 at 30%.
Without DTAA, you’d pay both. Total tax: 55%.
With the tax treaty between India US, you claim credit. India acknowledges your US payment. You pay only the difference 5% to India. Total effective tax: 30%.
To claim this relief, you file Form 67 with your Indian tax return. This form proves you paid tax abroad. Attach foreign tax payment receipts, bank statements, and your Tax Residency Certificate (TRC).
The India–USA tax treaty specifically addresses taxation on US stocks in India. It caps withholding rates on dividends and interest. For qualified dividends, the US withholds only 15% instead of 30%. This reduced rate under DTAA with the USA directly increases your net returns.
The process requires documentation. But the tax savings justify the effort.
Major Countries Having DTAA with India
India has signed double taxation avoidance agreements with countries across six continents. Over 90 nations participate. Here are the key ones:
DTAA between India and USA: Covers salary, dividends, interest, and capital gains. The treaty also addresses retirement accounts like 401(k)s and IRAs, which require special tax treatment for NRIs.
DTAA between India and the UK: Prevents double tax on pension income for retired NRIs. Salary earned in the UK gets taxed there, with full credit available in India. The India-UK DTAA also covers royalties and professional fees.
India Singapore DTAA: Favorable for start-up founders and investors. Capital gains on shares sold after April 2017 are taxed only in the resident country. Dividends face reduced withholding rates.
DTAA between India and UAE: Critical for NRIs in Dubai and Abu Dhabi. Since the UAE has zero income tax, the treaty ensures India doesn’t overtax UAE-sourced income. Property rental from India gets standard DTAA relief.
India Germany DTAA: Applies to corporate income, royalties, and technical fees. Beneficial for NRIs working in German corporations with Indian operations.
India Mauritius Double Taxation Avoidance Agreement: Historically used for capital gains benefits on investments routed through Mauritius. Recent amendments tightened provisions but benefits remain for long-term investors.
Each treaty has unique provisions. Review your specific country’s agreement before investing.
How Can NRIs Avoid Double Taxation?
Follow these steps to eliminate double tax burden:
Step 1: Confirm your country has a DTAA with India. Check the Income Tax Department’s official list of double taxation avoidance agreement countries.
Step 2: Obtain a Tax Residency Certificate (TRC) from your country of residence. This government-issued document proves that you’re a tax resident. Banks and tax authorities need this.
Step 3: File your Income Tax Return (ITR) in India. Declare all global income, even if earned abroad. Transparency prevents future scrutiny.
Step 4: Claim foreign tax credit using Form 67. Submit before filing your ITR. Include foreign tax payment proof, TRC, and Form 10F.
Step 5: Maintain complete documentation. Keep foreign bank statements, salary slips, tax certificates, and treaty provisions handy. These prove your eligibility for relief.
Understanding taxes on foreign income in India becomes simpler with proper guidance. Many NRIs overpay because they don’t claim DTAA benefits. Don’t be one of them.
The tax on foreign income of a resident Indian applies only to taxable income. DTAA modifies how much you actually pay.
While these steps outline the process, navigating DTAA claims and international tax compliance can be complex. Explore our comprehensive NRI tax and investment services for expert guidance tailored to your specific situation.
Impact of DTAA on NRI Investments
DTAA directly affects your investment returns. Here’s how across different asset classes:
Mutual Funds & Shares: Capital gains on Indian equity mutual funds get taxed in India. If you’ve paid tax abroad on the same gains, DTAA provides credit. Long-term capital gains benefit from reduced rates under treaties like India-Singapore DTAA.
Property Income: Rental income from Indian property faces a 30% tax before deductions. If you’re taxed on this rent in your residence country, DTAA prevents double levy. The DTAA between India and the USA allows credit for US tax paid on Indian rental income.
NRE/NRO Deposits: Interest from NRE accounts remains tax-free in India. NRO interest faces TDS at 30%. However, treaties like DTAA for NRI with the UK reduce TDS to 10-15% depending on provisions.
Dividends from Indian Companies: Post-2020, dividends are taxable in investors’ hands. DTAA caps withholding rates. Under the India–USA DTAA, dividend TDS drops to 15% from 20%.
Real example: An NRI in Singapore invests ₹50 lakhs in Indian equity. She earns ₹10 lakhs in long-term capital gains. India taxes this at 10% (₹1 lakh). Singapore taxes foreign capital gains at 0%. No double taxation occurs. She pays only ₹1 lakh total.
Without understanding how Double Taxation Avoidance Agreements (DTAA) affect NRI Investments, she might have feared double taxation and avoided investing altogether.
Countries Without DTAA with India
Not all countries have signed treaties with India. Notable absences include certain African and South American nations.
If you’re an NRI from a country without DTAA, the double taxation risk is real. You’ll pay tax in both countries on the same income.
However, relief options exist under domestic law. Section 91 of the Income Tax Act provides unilateral relief. You can claim credit for foreign tax paid even without a treaty. But the process is more complex and less favorable than the DTAA provisions.
Which country does not have a DTAA double taxation avoidance agreement with India? Check the updated list on the Income Tax Department website. Treaties get added regularly.
For these NRIs, planning becomes crucial. Structure investments to minimize dual taxation. Consult cross-border tax experts who understand both jurisdictions.
DTAA and Indian Tax Implications
Even with DTAA, Indian tax on foreign income applies in many cases. The treaty determines how much, not whether you owe tax.
Here’s the framework: DTAA decides which country has primary taxing rights. If India has those rights, you declare the income in your ITR. Then apply treaty benefits—either exemption or tax credit.
Example: You earn $50,000 salary in the UK. The DTAA between India and UK gives primary taxing rights to the UK (where you work). India can’t tax this salary. You’re exempt in India.
Counter-example: You earn ₹5 lakhs in rental income from an Indian property while living in the US. India has the primary right to tax property income. You pay tax in India. If the US also taxes you, claim credit there under the double tax treaty India-UK provisions (if applicable to your situation).
Documentation is critical. Maintain your TRC, Form 10F (self-declaration of tax residency), proof of foreign income, and foreign tax payment certificates. The Income Tax Department may ask for these during assessment.
The tax on foreign income of a resident Indian is calculated at slab rates. DTAA doesn’t change rates—it changes who collects tax and provides credit mechanisms.
Conclusion: Why DTAA Matters for NRI Investors
Double taxation avoidance agreement countries provide a safety net. These treaties make cross-border investment viable. Without DTAA, global income would face punitive dual taxation.
For NRI investors, DTAA ensures fairness. You’re taxed once at reasonable rates. You can invest in India without fearing excessive tax burden. You can work abroad while maintaining Indian assets.
Before investing, review the DTAA between your residence country and India. Understand which income gets taxed where. Know the withholding rates and credit mechanisms.
DTAA for NRI isn’t just a tax concept. It’s a wealth preservation tool. It determines your net returns on every investment.
Consult a qualified tax advisor familiar with international taxation. File compliant returns. Claim entitled benefits. The double taxation relief you gain can compound into significant wealth over decades.
Your global income deserves smart tax planning. DTAA makes that possible.
Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.
FAQs
Frequently Asked questions
Is DTAA applicable to all NRIs?
Yes, if your country has signed a treaty with India. Your residential status determines eligibility. You must be a tax resident of the other country and hold a valid TRC.
What documents are required to claim DTAA benefits?
You need: Tax Residency Certificate from your country, Form 10F, Form 67 (for tax credit), foreign tax payment proof, and income statements from abroad.
How to determine residential status for DTAA eligibility?
Residential status depends on physical presence and ties. Under the DTAA between India and the USA, tie-breaker rules apply. If you’re a resident in both countries under domestic law, the treaty uses permanent home, center of vital interests, and habitual abode to determine single residence.
Can DTAA benefits be claimed for capital gains or dividends?
Absolutely. DTAA for NRI covers capital gains, dividends, interest, salary, and business income. Each treaty specifies withholding rates and taxing rights for these income types.