Published Fri, 16 Jan 2026 | Updated Fri, 16 Jan 2026
DTAA full form is Double taxation avoidance agreement is a agreement between India and other countries to safeguard individuals and entities from being taxes twice on the same income. The DTAA (Double taxation avoidance agreement) is essential for the environment of foreign direct investment in India. A DTAA is between two countries and determines how much tax each country can collect from the investment made in the other country. The purpose of a DTAA is to prevent multiple taxation of income generated internationally.
DTAAs prevent a taxpayer from having to pay taxes multiple times. They also increase the investor's net return after-tax and therefore the internal rate of return (IRR) of a global investment project.
India currently has an extensive network of tax treaties with over ninety countries and one of the most extensive DTAA networks in the world. The opportunity for tax savings is not the only benefit of DTAAs; DTAAs also allow for the exchange of information, create transparency between two countries, and provide a structured process for resolving tax disputes.
Together these benefits make India a stable and attractive country for foreign investors.
The role of a double tax avoidance agreement (DTAA) is to identify which nation has the right to tax an individual's income, Article I of each DTAA establishes that both nations will have jurisdiction over the individual's income described in Article I.A. An example for India would be the residence principle; taxation is based on where the individual resides. The same individual could also have an obligation under a source principle; where the income was generated, which could be in this case, India.
Under Indian law, individuals who reside in India would pay taxes on the income earned anywhere in the world; whereas, individuals who are not residents of India are only taxed on the income that was earned or received from sources located within India. If a DTAA did not exist and both jurisdictions-imposed taxes, a situation may arise where an individual would pay a 20% tax to the Indian Government and an additional 25% tax to the Government of his or her country. DTAAs eliminate the potential for this double taxation and enable countries to benefit from international trade and capital movement without fiscal impediments.
DTAA prevents the income of an Individual or entity from being taxed twice. Under Double Taxation Avoidance Agreements (DTAAs), there are two main methods used to prevent double taxation:
Credit Method
The investor pays tax in India and is allowed to take a credit for that tax against the tax they would otherwise pay in their home country, resulting in a maximum tax that equals the higher of the two countries' tax rates instead of a combined total.
Exemption Method
Some specific categories of income earned in India will be completely exempt from tax in the investor's home country, resulting in the full benefit of India’s sector-specific benefits or incentives.
When withholding taxes are incurred in connection with cross-border transactions, they often represent an unaccounted-for, yet material cost that can be included when determining total costs. DTAAs typically specify treaty rates that are much lower than the withholding tax rates imposed under India’s domestic legislation (Income-tax Act, 1961).
Dividends
Dividends that are now subject to tax for non-residents are generally capped at treaty rates of only 5%-15% while domestic effective rates (including certain surcharges) are significantly greater.
Interest
Although domestic legislation may impose a 20% withholding tax rate, the majority of DTAAs provide for lower rates of 10%-15%, thus facilitating more affordable funding through debt financing for cross-border transactions.
Royalties and Fees for Technical Services (FTS)
The lower withholding tax rate (10%) applicable to technology-based businesses may enable foreign investors to develop, invest in and/or purchase intellectual property and provide their expertise to developing countries through the use of the DTAAs.
The most important safeguard provided by the treaty is established clarity regarding what constitutes Permanent Establishment (PE) the level of activity by a foreign company in India that creates a requirement to pay tax on a net basis in India.
Examples of different forms of PE found in treaties include
Fixed place PE (location, business establishment)
Service PE (presence of personnel for more than the allowed period of time under the treaty)
Agency PE (a dependent agent acting on behalf of a principal who is entering into contracts with customers)
Treaties will provide clear definitions of when an entity's activities in India cross the threshold for creating a PE. For example, under certain treaty provisions, consultants can work in India for less than 90 days, and if they do not exceed the 90-day requirement, they are not subject to any PE risks associated with business development in India. By providing such clarity, treaties facilitate a temporary or exploratory presence in India without creating unintended corporate tax obligations.
To qualify for treaty benefits, you must provide documentation. Here are the documents you will need to include with your claim:
Tax Residency Certificate (TRC): This provides proof that you are a resident of your home country annually.
Form 10F: The supplier needs to file Form 10F online through the official website of Income tax India.
No PE Certificate: This is a self-declaration to be provided by the supplier to the recipient confirming that the supplier does not have any permanent establishment in India
Failure to provide any of these documents can lead to the imposition of domestic Income tax rates instead of the lower treaty rates.
The taxpayer must first ascertain whether India has an active DTAA with the relevant foreign nation in order to ascertain whether DTAA benefits are applicable. Since DTAAs only apply to certain categories of income as specified in the treaty articles, the nature of income must be examined after confirmation.
DTAA typically covers the following types of income:
Salary and employment income
Business profits
Capital gains
Dividends
Interest
Royalties and Fees for Technical Services (FTS)
Income from immovable property
These income categories are governed by distinct articles in each DTAA, which also include applicable tax rates, conditions, and thresholds.
In order to avail DTAA benefits in India the taxpayer must do the following:
The taxpayer shall determine residential status as per the applicable DTAA
Identify the applicable article of the DTAA treaty in respect of the income
Compare the domestic income tax rates with the treaty rate and apply the more beneficial rate
Submit documents such as Tax Residency Certificate (TRC), Form 10F, and No PE Certificate, to the Indian payer or tax authorities
Make sure that withholding tax and reporting requirements are met.
To effectively claim DTAA benefits, timely documentation and proper structuring are crucial.
India has DTAAs with several major economies. A few key treaty partners include:
|
S.No. |
Country |
DTAA in Force |
|
1. |
United States |
Yes |
|
2. |
United Kingdom |
Yes |
|
3. |
Japan |
Yes |
|
4. |
Singapore |
Yes |
|
5. |
Germany |
Yes |
|
6. |
France |
Yes |
|
7. |
Australia |
Yes |
|
8. |
Canada |
Yes |
Germany, France, the Netherlands, Switzerland, Spain, Italy, South Korea, China, the United Arab Emirates (UAE), Mauritius, South Africa, Malaysia, Thailand, Indonesia, Sweden, Norway, Denmark, Finland, Belgium, Austria, Brazil, Russia, New Zealand, and Hong Kong are among the other nations with which India has DTAA have been signed.
These agreements promote cross-border trade, investment, and economic cooperation while fortifying India's network of international tax treaties.
These treaties help facilitate cross-border trade, investment, and technology transfer.
The DTAA (Double Tax Avoidance Agreement) goes beyond being a means of collecting revenue; it enables cross-border investment by providing taxpayers with significant tax savings. The DTAA helps to identifiably increase the attractiveness of investing in India by eliminating the burden of double taxation, reducing the overall cost of capital, and providing clarity to investors through the dispute-resolution process.
However, in order to receive the benefits of the treaty, the taxpayer must intentionally structure the transaction and have sufficient economic substance in the transaction in order to qualify for the benefits provided by the DTAA. By having an understanding of how DTAA compliance fits into the core of the business or investment plan, foreign investors are in an advantageous position to achieve sustainable growth by taking advantage of the DTAA in one of the fastest-growing economies globally.
