To determine if your income is exempt under DTAA, the first criterion is your residential status. You should be a resident of one of the countries involved in the DTAA. Generally, residency is determined based on the number of days spent in a country during a financial year or other factors specified in the agreement.
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Nature of Income
DTAA provides specific rules for different types of income, such as dividends, interest, royalties, capital gains, and salaries. Each category of income may have its own criteria for exemption. For example, some agreements may provide that interest income will be taxable only in the country of residence, while others may impose limitations on the rate of taxation.
Tie-Breaker Rule
In cases where an individual is considered a resident of both countries involved in the DTAA, the tie-breaker rule is used to determine the country of residence for tax purposes. This rule takes into account various factors, such as the individual's permanent home, center of vital interests, habitual abode, and nationality. Once the country of residence is determined, the provisions of the DTAA between that country and India will apply.
Certification of Tax Residency
To avail the benefits of DTAA, you may need to provide a Tax Residency Certificate (TRC) issued by the tax authorities of your country of residence. The TRC serves as evidence that you are a resident of that country and can claim the exemptions provided under the DTAA.
Compliance with Conditions
Exemptions under DTAA are subject to compliance with certain conditions specified in the agreement. These conditions may include thresholds for the amount of income, specific qualifications or limitations, and compliance with the tax laws of both countries.
By taking advantage of the provisions under DTAA, you can avoid double taxation, optimize your tax liability, and ensure compliance with the tax laws of both countries.
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