DTAA or Double Taxation Avoidance Agreement is a contract signed between two countries so that the taxpayers can avoid getting taxed twice during making income tax payment. This agreement not only saves the taxpayers from getting taxed for multiple times, but also encourage international businesses. It applies to the entities who resides in a different country and earn in a different country. It includes the taxation for all income sources in most cases, but in certain cases it has limitations. Income tax payment limitations are made for shipping, air transport and inheritance and in some cases it offers concession to keep the taxation rules fair.
This agreement was introduced in India to make this country an attractive destination for investment. It relieves the tax payers from excess income tax payment for those income which was earned and taxed in abroad. India has DTAA agreement with 80 countries and maintains a lower tax rate for various fees, services and royalty. But there are also negative side of this agreement has been experienced, such as many foreign investors made it a linear way to sidestep income tax payment in both home country and in India.
If your earnings fall under the same category, then you can also claim benefits under this DTAA provision during tax filing. NRIs can also get benefits under this provision if they make earnings from investments made in India. However, now the Indian Government is working to close all the loopholes in this agreement so that no one gets an escape from income tax payment. Such an example was set at 2016, when India amended this agreement with Mauritius to close certain loopholes. This amendment will be applicable from April, 2017 where the Maurition entities will have to pay taxes for all the capital gains. This was made because those entities were not paying taxes in Mauritious due to certain rules and also were not making any income tax payment in India due to DTAA provision.