In case of cross border transactions, the income may be taxed in the home country (basis tax residency) as well as source country (where income is earned) leading to double taxation of the same income. In order to avoid this double taxation of income, the home and the source country mutually enter into tax treaty generally known as DTAA.
As per DTAA, generally the income may be taxed at a lower rate or nil rate in the source country. To avail the benefit of DTAA in India, Tax Residency Certificate (TRC) along with Form 10 F and Permanent Account Number (PAN) is to be furnished. Wherever tax is applicable as per the DTAA, if the PAN is not furnished ,benefit of concessional rate as per the DTAA shall not be available.
In case any interest income is recieved by a non resident from India ,tax is liable to be deducted at the rate of 20%+ applicable surcharge and cess as per the Indian tax laws except in case of FCNR deposits and NRE deposits where no tax is applicable. But in case India has a treaty with the country of residence of the recepient, tax will be deducted at a lower rate provided a valid TRC along with Form 10 F and a PAN is provided and hence a higher post tax return will be received by the depositor. Also a credit can be claimed for the taxes deducted in the source country, from tax payable in the home country.
Master Circular on Non-Resident Ordinary Rupee (NRO) Account
Master Circular of instructions relating to deposits held in FCNR (B) Accounts
Deregulation of Interest Rates on Non-Resident (External) Rupee (NRE) DepositsRead More
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Nothing in this document is intended to constitute legal, tax, securities, or investment advice, or an opinion regarding the appropriateness of any investment, or a solicitation of any type.
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