Can The Same Income Be Taxed Twice in Two Countries?

TAXATION FOR MANAGERS
CIA-3
Assignment
Submitted to:
Prof. Ganesh Krishnamurthy
Institute of Management
Christ University
Name: Sayon Das

Roll. No.: 1421328
CAN THE SAME INCOME BE TAXED TWICE IN TWO COUNTRIES?
Double taxation refers to tax liability from the same income in two or more countries and jurisdiction.
The deductible tax can be income tax, tax on capital gains or indirect tax as sales tax.
In businesses or employment in foreign countries the problem arises that income will be taxable in
his/her domestic country but also taxable in country of origin of income. The income can be taxed
twice in the country of residence and country of citizenship.
In order to avoid double taxation on the same income The Double Tax Avoidance Agreements (DTAA)
helps to mitigate this problem as it is a bilateral agreement between two countries to counter tis
problem. This helps to facilitate economic trade and investment between two countries. The DTAA
helps in decreasing withholding of taxes and payment of accurate taxes.
The provisions in the DTAA supersede the provisions of the domestic tax policy. This helps a nonresident of a country to avoid double taxation in case of non-resident accounts, government securities,
gain from shares and dividends and credit facility.
Generally the tax is deducted at source i.e. the country from which the income arises for which the
taxpayer receives foreign tax credit from the country of residence in order to validate that tax has
already been deducted. Since, individuals have one residence at a single point of time taxation is
simple in nature. Incase of an artificial person such as a company or a corporate person, which can
own multiple subsidies in different countries double taxation poses a problem. This requires
declaration of information of transfer pricing, intellectual property rights etc.
India has double Tax Avoidance Agreements with 88 countries which signifies that there is agreed rates
and jurisdiction on income which is generated from a country where taxpayer is residence. There are
two types of reliefs available under the Income Tax Act, Sec 90 under which relief is provided to
taxable income which is taxed in a country which has signed DTAA with India and Sec 91 under
which relief is provided to taxable income which is taxed in a country with which India is not a
signatory of the DTAA Act.
Investor from country such as Mauritius and Singapore with whom tax treaty exists that income from
sale of stocks and capital gains from it would be taxable in the country in which the taxpayer is
resident instead of the country in which the sale of stocks has been occurred.
The DTAA with the USA with India is done for avoidance of double taxation and prevention of fiscal
evasion with respect to tax liability on income.
According to the DTAA non-residents have to choose the lesser of the taxable rate on the income with
the country of his/her residence and the taxable rate which is chargable by the Indian Tax Laws.
Application
1. For example under the DTAA between India and Singapore if the
Tax deductible at source is 33% under the Indian Income Tax Act and 16% in the place of his
residence i.e Singapore the lower of the two rates will be chargeable to the tax payer.
2. DTAT with Maritius states the there is zero tax for capital gains on equity. For e.g if taxable
rate for long term capital gains in India is 20% and charged at 30% in its resident country then
the levied will be at 10%.
The tax credit method is as follows:
Income in source country
Income in resident country
Worldwide income
Tax paid in source country @ 20%
Tax paid in resident country on world income @ 30%
Less: Tax paid from its source of origin (country)
Tax paid in resident country
Total Tax paid
Income from salaries is taxed at three different slabs under Indian Income Tax Act. Under the
treaty exemption is provided if the person stays lesser than 183 days and the salary is not paid
by Indian resident.
Income from business and profession is taxed when it is earned from a permanent entity in
India.
Dividend is not taxable in India in order to avoid double taxation.
Income from interest is taxed with respect to slabs and tax is deducted at 30% on income from
interest by a NRI. However, the DTAA provides concession of 10-15% on the income from
interests.
Apart from Mauritius, Singapore and Cyprus where income from capital gains is exempted that
DTAA states that income from capital gains is to be taxed at the country of source.
In order to avail the advantages of DTAA a person must declare his country of origin, country of
residence, his KYC information as PAN card etc. and tax residency certificate.
BIBLIOGRAPHY
https://en.wikipedia.org/wiki/Double_taxation
http://pib.nic.in/newsite/erelease.aspx?relid=93330
http://www.goodreturns.in/classroom/2013/07/what-is-double-taxation-avoidance-agreementdtaa193501.html
http://www.nritaxservices.com/tax_dbl.htm
http://www.nadt.gov.in/writereaddata/MenuContentImages/India%20US%20Double%20Taxation
%20Avoidance%20Treaty635480255452005394.pdf
http://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx
http://businesstoday.intoday.in/story/how-treaties-with-foreign-countries-can-help-nris-savetax/1/194401.html

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TAXATION FOR MANAGERS

Name: Sayon Das

CAN THE SAME INCOME BE TAXED TWICE IN TWO COUNTRIES?

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