Income tax

POSTED BY murthy ON February 9, 2012 6:46 pm COMMENTS (2)

If a person is paying tax in another country and comes under ‘double tax avoidence rule”, he need not pay tax for his/her Indian salary income. This being the case, does this rule applicable to Bank interest and Long term capital gain (in shares) also? How one can avail this facility and avoid TDS or paying tax on interest earned??

2 replies on this article “Income tax”

  1. Dear Murthy, if my understanding is correct, You are asking for zero tax using DTAA on your indian income be it from interest or Eq. Please confirm that my understanding is correct.



  2. BanyanFA says:

    Hi Murthy,
    As I understand it, in order to take advantage of DTAA, you need to file return of Income. The basic way in with DTAA works is that you have to pay tax at a higher rate prevailing in either of the countries you are being hit.

    For example, if you have 100,000 Rs. Interest Income in India which is considered Tax Free (in India), but on which you have to pay Tax in (for Example in US), then you shall have to pay tax at the rate applicable in US.

    Second case, if you have 100,000 income in INdia which is liable for 20% tax (in India), but liable for 10% tax in US, then first you have to pay 20% tax in India. After that you have to file a return in US where you declare that the Income has already been taxed @ 20% in India and since the applicable rate is 10% in USA, you would not pay extra tax. However, you can not claim the additional tax paid in India.

    Third case, if in above example, the tax rate was 30% in US and not 10%, then you would have to pay additional 10% in USA.

    The rule applies on all types of Income. You have to file a return of Income based upon the rules in place in the respective country and claim deduction based upon the Income Already taxed in other country.

    You may want to contact a Tax expert who deals in DTAA provisions.


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