In this Post we are going to discuss on basics of Double taxation Avoidance agreements(DTAA). Section 90 of the Income Tax Act, 1961 deals with various provisions related to double taxation avoidance agreement. The Present Government of India i.e. Modi Government has a basic agenda of development by MAKE IN INDIA . For Development they want to take the best technology, Resources. They Also allow Foreign Direct Investment in Various Areas. Due to this initiatives taken by government the Double taxation avoidance agreement will achieve there goal.
What is Double Taxation?
Ans. Double Taxation means the income of an assessee is taxed twice by different jurisdictions. For e.g. A resident Indian has a Land in Foreign Country. When he sale the land then the gain on such selling is first taxed in foreign country & then after same gain is taxed in india also. Therefore the Gain on sale of Land is taxed twice & it is referred as Double Taxation.
What do you mean by Double Taxation Avoidance Agreement?
Ans. Double Taxation Avoidance Agreement is an agreement made between two or more countries to avoid the Double taxation on the same Income. Countries come together & mutually agree not to tax the same income twice.
How an Income is taxed under Double Taxation Avoidance agreement?
Ans. Various types of equation are mutually agreed between Countries. Sometimes it is agreed that the income is taxed only in one country & the country which levy the tax will reimburse the part of tax to the other Country. For e.g. there is an agreement between India & Germany. The income arising in Germany by a resident Indian is to be taxed in germany only & after that the part of tax is to be transfer to Indian government.
Sometimes it is agreed that the income is to taxed in both the countries but at the minimum tax rate. For e.g. there is an agreement between India & America. According to this agreement the income arising in America by an resident Indian should be taxed @ 20% in America the original Tax Rate in America is 40% & the same income is to be taxed @ 15% in india the original tax rate in india is 30%.
Write some of the Double Taxation Avoidance Agreements names ?
Ans. There are various types of agreement entered into by the Government of india with different governments of different countries. Few of them are stated below:
Afghanistan: Limited agreements
African Congress Mission : Other Agreements.
Albania: Comprehensive Agreements
Argentine : Tax Information Exchange Agreement
Bahrain: Tax Information Exchange Agreement
Pakistan: Limited Agreements.
Pakistan: Limited Multilateral Agreement.
Why Double Taxation Avoidance Agreements are made?
Ans. Double Taxation Avoidance Agreement are made to avoid the Double Taxation on Same Income. Now there is an time of global era. Various companies want to invest in other foreign countries companies but due to double taxation they avoid it. Therefore to increase the business between various countries the government of various countries come together & make a double taxation avoidance agreement in different sector of there interest.