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• Posted 24 May, 2024
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Basics of Double Taxation Avoidance Agreement (DTAA) between India and the UAE

The Double Taxation Avoidance Agreement (DTAA) between India and the United Arab Emirates (UAE) is a treaty that aims to prevent individuals and companies from being taxed twice on the same income. This article explains the key points of the agreement in simple terms.

What is Double Taxation?
Double taxation occurs when the same income is taxed in two different countries. This can happen when a person or business resides in one country but earns income in another. To prevent this, countries enter into DTAAs.

Key Points of the India-UAE DTAA

1. Who Does It Apply To?
   The agreement applies to people and businesses who are residents of India or the UAE, or both.

2. Types of Taxes Covered
   The DTAA covers the following taxes:
   > In the UAE: income tax, corporation tax, and wealth tax.
   > In India: income tax (including any surcharge), surtax, and wealth tax.

3. Main Benefits
Avoiding Double Taxation: If a person or business pays tax in one country, they can get a credit for that tax in the other country. For example, if an Indian resident earns income in the UAE and pays tax there, they can claim a deduction in India for the tax paid in the UAE.
 

Tax Exemptions: Certain types of income are exempt from tax in one of the countries. For instance, the income earned by the government or government institutions of one country is exempt from tax in the other country.

4. Income Types and Their Taxation
> Business Profits: Generally, business profits are taxed in the country where the business activities are carried out.
> Income from Immovable Property: Income from property, such as rental income, is taxed in the country where the property is located.
> Dividends, Interest, and Royalties: These types of income are usually taxed in the country of residence, but the source country (where the income originates) may also tax them. However, the tax rates are often reduced under the DTAA.
> Salaries and Pensions: Salaries are taxed in the country where the employment is exercised, while pensions are usually taxed in the country of residence.

5. Elimination of Double Taxation
  Each country allows its residents to deduct the tax paid in the other country from their own tax liability. This deduction ensures that the income is not taxed twice.

6. Exchange of Information
  The two countries agree to exchange information to prevent tax evasion. This means they share details about income and assets to ensure proper tax compliance.

7. Mutual Agreement Procedure
  If any issues or disputes arise regarding the interpretation of the agreement, the tax authorities of both countries will work together to resolve them.

8. Termination
  The agreement remains in force indefinitely but can be terminated by either country by giving notice.

Practical Examples

> Example 1: An Indian Company in UAE
  An Indian company operating in the UAE earns profits. According to the DTAA, these profits will be taxed in the UAE. If the company pays taxes in the UAE, it can claim a credit for those taxes against its tax liability in India.

> Example 2: A UAE Resident with Indian Property
  A UAE resident owns a rental property in India. The rental income will be taxed in India. However, if the UAE also taxes this income, the resident can claim a deduction for the Indian tax paid.

Conclusion

The DTAA between India and the UAE helps individuals and businesses avoid being taxed twice on the same income, fostering economic cooperation and clarity in tax matters between the two countries. By understanding and applying the provisions of this agreement, taxpayers can manage their tax liabilities more effectively.