Salient Features of DTA
agreements between India & others
A typical DTA Agreement between India and another country covers only
residents of India and the other contracting country who has entered into the agreement
with India. A person who is not resident either of India or of the other contracting
country cannot claim any benefit under the said DTA Agreement. Such agreement generally
provides that the laws of the two contracting states will govern the taxation of income in
respective states except when express provision to the contrary is made in the agreement.
A situation may arise when originally the tax provision in the other contracting state
gave concessional treatment compared to India at a particular time but Indian laws were
subsequently amended to bring incidence of tax to a level lower than the tax rate existing
in the other contracting state. Since the tax treaties are meant to be beneficial and not
intended to put tax payers of a contracting state to a disadvantage, it is provided in
Sec. 90 that a beneficial provisions under the Indian Income Tax Act will not be denied to
residents of contracting state merely because the corresponding provision in tax treaty is
less beneficial.
Some Double Taxation Avoidance agreements provide that income by way of
interest, royalty or fee for technical services is charged to tax on net basis. This may
result in tax deducted at source from sums paid to Non-residents which may be more than
the final tax liability. The Assessing Officer has therefore been empowered u/s 195 to
determine the appropriate proportion of the amount from which tax is to be deducted at
source.
There are instances where as per the Income-tax Act, tax is required to
be deducted at a rate prescribed in tax treaty. However this may require foreign companies
to apply for refund. To obviate such difficulties Sec. 2(37A) provides that tax may be
deducted at source at the rate applicable in a particular case as per section 195 on the
sums payable to non-residents or in accordance with the rates specified in D.T.A.
Agreements.
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