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Treaties can help non-residents avoid paying tax twice on the same income


I used to live in Saudi Arabia and was applying for the Double Tax Avoidance Agreement (DTAA) certificate from the Saudi government to produce to my bankers in India. The DTAA came into effect only by November 2015. Now, I am in Australia. I went as a student, finished my masters and now I hold a temporary resident visa. I need to know if the DTAA was signed between Australia and India. If not, then what should I show to my bankers so that I am not double taxed, as I am paying my taxes in Sydney?

—Kenrick Fernandes

Non-resident Indians (NRIs) living abroad sometimes earn an income from India. Such income may be taxed both in India as well as the country of residence of the NRI. To prevent tax being paid on the same income twice, DTAA is made between countries.

Taking benefit of a DTAA involves obtaining a tax residency certificate (TRC) that helps identify and certify your tax residency status to make sure the correct DTAA has been applied. This is in line with the tax laws in India.

While taking credit for tax deducted at source (TDS), make sure you are referring to the correct DTAA. Under DTAA, there are two methods to claim tax relief—exemption method and tax credit method. By exemption method, income is taxed in one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

This benefit can be claimed at the time of filing your income tax return (ITR). Please note that a DTAA exists between India and Australia. However, bankers may still deduct TDS on your income, the refund of which may be claimed at the time of filing your ITR.

My wife and I started living in the US from December 2019. We have two properties in India, which we have rented out. The rent comes into our non-resident ordinary (NRO) account. I want to know how this rent will be taxed in India.

—Avismrita Singh

Rental income from a property situated in India is taxable in India. You can compute your income from house property using tax laws prevailing in India.

From the gross annual value (the annual rental income) you are allowed to deduct property tax paid. From the remaining net annual value (NAV), you can deduct 30% standard deduction (30% of NAV). You are also allowed to reduce interest paid on a home loan taken for the construction of this house property, subject to a maximum loss of 2 lakh under the head house property. The income so arrived at shall be taxable as per the income tax slab rates applicable. You can claim deductions under Chapter VI-A, including Sections 80C and 80D, among others.

Do note that the tenant has to cut TDS at the rate of 30% (with additional surcharge and cess). In case your total taxable income is below the taxable limit in India, you may approach the assessing officer to issue a certificate to you for lower or nil rate of TDS. You can submit this certificate to the tenant so that TDS is deducted accordingly.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at [email protected]

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