If you earn income in more than one country, you might worry about paying tax twice on the same money. This is where the avoidance of double taxation idea finds application. Clear guidelines and policies set by the Indian government help to guard you against such circumstances. Let us clarify this simply here.
Double taxation: what is it?
Double taxation results from your earning income abroad.
- That nation pays taxes on your income.
- India taxes the same income either you bring it here or file your return.
- You thus pay tax twice on the same income.
Defining Avoidance of Double Taxation
Double Taxation Avoidance Agreements (DTAAs) help India to address this issue. These tax treaties India signed with other nations. The goal is rather basic: 👉 to guarantee taxpayers are not taxed twice for the same income. Among the more than 90 countries India has DTAAs with are the USA, UK, Canada, Australia, UAE, and Singapore.
Techniques Applied to Avoidance of Double Taxation
Under DTAA, there are two usually used techniques:
- Exemption Approach
Only one nation taxes your income; not both. - Tax Credit Method
You pay taxes abroad; India credits you for those taxes when you file your return here.
You thus avoid paying full tax once more in India—just the difference, if any.
In the simple case, for instance
Assuming you live in India,
- You earn ₹5 lakh in the UK and pay ₹1 lakh tax there.
- The Indian tax on five lakh is 1.25 lakh.
Under DTAA, you will merely pay the Indian difference:
👉 Already paid in UK, ₹1.25 lakh – ₹1 lakh = ₹25,000.
This is the way avoidance of double taxation functions.
How Would One Claim This Advantage in India?
- File your income either using ITR-2 or ITR-3, depending on your income source.
- Document foreign income and taxes paid.
- Before submitting your ITR, print Form 67 online.
- Store salary slips or foreign tax records for evidence.
Important Notes
- You have to be an Indian resident claiming DTAA benefits.
- List worldwide income on your tax return.
- File timely and turn in Form 67 for overseas tax credit.
Last Views
Following the avoidance of double taxation rules helps you legally save money and shields your income from two taxes. If you work overseas or make money from elsewhere, you have to be aware of and apply wisely this tax law.
