Scribd Logo
Upload

Welcome to Scribd!

  • Double Tax Avoidance Guide

    Uploaded by

    kumaravel_ind
    41 views2 pages
    Employees are required to abide by laws of both the countries their home country being the resident country and source country where the income arises. Double Tax Avoidance Agreements ('DTAA') have been entered into by various countries to avoid a person being doubly taxed in the source country and the country of residence. Relief of double taxation is generally available under two methods: a. Exemption method under this method, either of the state has an exclusive right to tax the income arising in the source state.

    Original Description:

    Original Title

    Double Tax Avoidance guide

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Employees are required to abide by laws of both the countries their home country being the resident country and source country where the income arises. Double Tax Avoidance Agreements ('DTAA') have been entered into by various countries to avoid a person being doubly taxed in the source country and the country of residence. Relief of double taxation is generally available under two methods: a. Exemption method under this method, either of the state has an exclusive right to tax the income arising in the source state.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    41 views2 pages

    Double Tax Avoidance Guide

    Uploaded by

    kumaravel_ind
    Employees are required to abide by laws of both the countries their home country being the resident country and source country where the income arises. Double Tax Avoidance Agreements ('DTAA') have been entered into by various countries to avoid a person being doubly taxed in the source country and the country of residence. Relief of double taxation is generally available under two methods: a. Exemption method under this method, either of the state has an exclusive right to tax the income arising in the source state.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    22/12/2014

    www.businessstandard.com/article/printerfriendlyversion?article_id=114122000669_1

    Howtoavoiddoubletaxation
    Twocasestudiesonhowonecanusetheexemptionmethodorthecreditroute
    HomiMistryDecember20,2014LastUpdatedat22:06IST
    Imaginethis.YouareanIndianworkingforoneoftheITmajorsand
    havebeenrecentlytransferredtotheUK.
    Sixmonthsintothejob,youaregrippedwithanigglingdoubt:Will
    myincomebetaxedintheUKorIndia,orwillIbeaskedtopay
    taxesinboththecountries?
    Withtheincreasingmovementofemployeesacrosscountriesinthe
    pastfewyears,it'sapertinentquestion.Employeesarerequiredto
    abidebylawsofboththecountriestheirhomecountrybeingthe
    residentcountryandsourcecountrywheretheincomearises.
    Thiswouldresultinthesameincomebeingtaxedintwocountries.Toavoidthisdoubletaxation,Double
    TaxAvoidanceAgreements('DTAA')havebeenenteredintobyvariouscountriestoavoidaperson
    beingdoublytaxedinthesourcecountryandthecountryofresidence.
    India,atpresent,hasenteredintoDTAAswithvariouscountries.Reliefofdoubletaxationisgenerally
    availableundertwomethods:
    A.ExemptionmethodUnderthismethod,eitherofthestatehasanexclusiverighttotaxtheincome
    arisinginthesourcestate.
    B.TaxcreditmethodUnderthismethod,foreigntaxcreditisgivenintheresidentstateinrespectoftax
    paidinthesourcestateonthedoublytaxedincome.
    InIndia,taxabilitydependsontheresidentialstatusandthesourceofincome.InIndiawhileaNon
    Resident('NR')/NotOrdinarilyResident('NOR')istaxedontheIndiansourcedincome,aResidentand
    OrdinarilyResident(ROR')istaxedonworldwideincome.Intheexamplegivenbelow,welookattwo
    scenariosofdoubletaxationandhowthesamecanbeavoided.
    AUKemployeeworkinginIndiaqualifyingtobeaRORduringFY20142015returnstohishome
    countryonJuly31,2014
    Inthepresentcase,sincetheemployeequalifiestobeanRORinIndia,hisworldwideincomewouldbe
    subjecttotaxinIndia.Hence,thesalaryincomeearnedbyhimintheUKduringtheperiodAugust1,
    2014toMarch31,2015wouldbesubjecttotaxinIndia.Further,undertheUKlaws,assuminghealso
    qualifiestobearesidentoftheUKfromAugust1,2014,UKwouldalsotaxhissalaryincomefrom
    August1,2014.
    http://www.businessstandard.com/article/printerfriendlyversion?article_id=114122000669_1

    1/2

    22/12/2014

    www.businessstandard.com/article/printerfriendlyversion?article_id=114122000669_1

    However,aDTAAexistsbetweenIndiaandtheUKandtheemployeecanavailofthebenefitsofthe
    DTAAtotheextentitismorebeneficialtohim.Typically,undertheDTAA,whereanindividualisa
    residentofbothcountries,thetiebreakertestwouldhavetobeappliedtoascertainthecountryof
    residenceaccordingtoDTAA.Underthetiebreakerclause,conditionssuchasexistenceofpermanent
    home,closenessofeconomicandsocialtiesandthelikearefactorsindeterminingtheresidencyandthe
    samehastobeexamined.Inthepresentcase,theindividualisdeputedfromtheUK.Assuminghis
    residencytiebreakstotheUK,undertheIndiaUKDTAA,hewillbeexemptfromtaxinIndiaon
    salaryearnedduringtheperiodAugust1,2014toMarch31,2015underArticle16oftheIndiaUK
    DTAA.However,accordingtotheprovisionsoftheIndiataxlaw,aTaxResidencyCertificate(TRC)
    wouldberequiredtobeobtainedfromtheUKauthoritiestoclaimtheexemptionalongwithForm10F
    undertheIncometaxAct,1961(Act).
    Inthisscenario,doubletaxisavoidedbyanexemptionmethod.
    AnIndianemployeedeputedoutsideIndiaandprovidingservicesoutsideIndiaqualifyingtobean
    RORinIndiaintheyearofdeputation(assumingheisdeputedtotheUKwitheffectfromJanuary1,
    2015).
    WhereanemployeeisdeputedtotheUKandqualifiestobeanRORintheyearofdeputation(i.e.
    FY20142015),hewouldbetaxableonglobalincomeinIndiaincludingsalaryfortheperiodJanuary1,
    2015toMarch31,2015.AssuminghequalifiesasresidentoftheUKwitheffectfromJanuary1,2015,
    hewouldalsobetaxableinUKonsalaryincomeearnedintheUKfortheperiodJanuary1,2015to
    March31,2015.NowassuminghisresidencytiebreakstoIndia,thenundertheIndiaUKDTAAhe
    wouldbeeligibletoclaimcreditinIndiaoftaxespaidintheUKonsuchdoublytaxedincomein
    accordancewiththeIndiaUKDTAA.
    Inthiscase,doubletaxisavoidedbythecreditmethod.
    Asitisevidentfromabove,whereyourincomeisderivedinonestateandyouareresidentofanother
    state,doubletaxcanbeavoidedbyapplyingtheDTAA.However,wheredoubletaxisavoidedby
    exemptionmethod,itisrelevanttoobtainTRCfromtheresidentcountry.Wheredoubletaxisavoided
    byclaimingforeigntaxcredit,itisimperativethattheproofoftaxespaid(suchastaxreturn,tax
    receipts,taxcertificates)intheothercountryismaintainedasevidence.Further,oneshouldbemindful
    toexamineeachArticleoftherespectivecountryDTAAtoclaimanexemptionortakecredit.
    ItwouldberelevanttonotethatevenintheabsenceofaDTAAenteredwiththatcountry,aresidentof
    Indiacanclaimforeigntaxcreditunderthedomestictaxlawsinaccordancewithsection91oftheAct
    subjecttoevidencebeingmaintained.
    ThewriterispartnerwithDeloitteHaskins&SellsLLP

    http://www.businessstandard.com/article/printerfriendlyversion?article_id=114122000669_1

    2/2

    You might also like