Double taxation is the levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). This double liability is often mitigated by tax treaties between countries.
To provide some respite from double taxation to their citizens, several countries have entered into bilateral Double Taxation Avoidance Agreement (DTAA) with each other. The main purpose of such agreements between two countries is the avoidance of double taxation, on income earned in any of these countries. Normally, under such agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides, for taxes levied in the other treaty country. As a result of this credit, the tax payer pays no more than the higher of the two tax rates.
A person who earns income must pay tax in the country he earns in as well as the country he resides in. In order to avoid this, India has signed Double Taxation Avoidance Agreements (DTAAs) with many countries so that the income is taxed only once.
To claim this benefit, one needs to know whether the country one resides in or earns income in has a DTAA with India. One has to file Form 10F, a tax residency certificate and self declaration in the prescribed format to the entity responsible for deducting tax at source.
Form 10F
This can be obtained from the bank or downloaded at http://www.incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007197.pdf
Details like the applicant’s nationality, tax identification number, address and period of residential status has to be filled and the form has to be signed.
Verification
Form 10F must be verified by the government of the country in which the assessee is a resident for the period applicable.
Self Declaration
It is a declaration that the assessee resided in the foreign country which is covered under a DTAA with India and hence, the tax rate applicable to the income is at the rate mentioned in the DTAA.
Tax residency certificate
A tax residency certificate must be obtained from the country in which the person was residing in a particular financial year. A tax residency certificate is issued on submission of required documents and payment of prescribed fees.
Points to note
1. PAN of the assessee needs to be provided in Form 10F and the self declaration form.
2. In order to know whether a particular country is under a DTAA (with India) and the type of agreement with that country, one can access the following link for the complete list: http://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx