The document provides an overview of Indian income tax provisions applicable to non-residents and key concepts related to double taxation avoidance agreements (DTAA). It covers taxation of non-residents, special provisions for non-resident Indians (NRIs), tax deduction requirements, and anti-avoidance measures including transfer pricing and tax information exchange agreements. Additionally, it explains DTAAs' purposes, structures, and the legal effects in relation to personal income taxation in India.

1. BASICS OF
INTERNATIONAL TAXATION
 An overview of Indian Income Tax
Provisions applicable to Non-
Residents.
 Important Concepts to understand
Double Taxation Avoidance
Agreements.
CA.
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2. Introduction
 Growing importance and emphasis on International
Taxation
 Taxation of Non Residents & NRIs
 Taxation of foreign nationals
 Cross border taxation of MNCs
 Issues related to black money
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3. Contents
1. Indian Income Tax Provisions related to
Non Residents.
2. Double Tax Avoidance Agreements
(i) DTAA – Purpose and objectives
(ii) OECD MC vs. UN MC
3. Basic Important DTAA Concepts.
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4. Indian Income Tax Provisions
related to Non Residents
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5. Income Tax Provisions related to Non
Residents
Taxation of
Non Resident
Definitions Scope of Special Presumptive
Sec. 2(30), 6 Taxation provisions taxation Sec.
Section 4,5,9 Chapter XII-A 44B/BB/BBA/
BBB
TDS DTAA Sec 90 Anti- Agent
Sec.195, 197 & 91 Avoidance Section
Provision 160, 163
Sec 92, 94A
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6. Income Tax Provisions related to Non
Residents
Types of Income R R & NR
OR
Received or deemed to be received in India   
by or on behalf of the assessee
Income that accrues or arises or is deemed   
to accrue or arise in India
Income that accrues or arises outside India   
and is not derived from business controlled
in or a profession set up in India
Income that accrues or arises / received   
outside India
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7. NR & NOR is taxable in India if
INCOME
EARNED
Received or
Accrues or Deemed to
deemed to be
Arises in Accrue or Arise
received in
India In India
India
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8. CHAPTER XII-A
Taxation of NRIs – Special Provisions
 Meaning of NRI – Non Resident Indians
i.e Indian Citizen or PIO who is NR
 Type of income
– Income from investment in “foreign exchange
assets”
– L.T Capital Gain on sale of “foreign exchange
assets”
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9. Taxation of NRIs – Special Provisions
 “Foreign Exchange Assets” means
– Shares in an Indian Company
– Debentures / Deposits in an Indian company
other than a private company
– Central Government Securities
– Purchased using convertible foreign exchange
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10. Taxation of NRIs – Special Provisions
Rate of tax
Investment LTCG on sale of
Income Forex Assets
20% 10%
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11. Taxation of NRIs – Special
Provisions
Other benefits available under Chapter XII-A
No need to file return if TDS is deducted
Option to continue availing the benefit even
after becoming resident on application made
to the assessing officer.
Chapter XII-A shall not apply if assessee so
chooses
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12. Tax Deduction at Source for Non Residents
Section 195 (1)
 Any person responsible to pay to a Non
resident to withhold tax
 In respect of interest or any other sum
chargeable under Income tax Act, 1961
 At the time of credit or payment, whichever is
earlier
 At the rates in force
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13. Tax Deduction at Source for Non Residents
Exceptions
 Interest payable by the Government or a
PSU Bank or a PFI, TDS shall be deducted
only at the time of actual payment.
 No TDS required for payment of dividend
distributed by a domestic company referred
to in Sec 115-O.
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14. Tax Deduction at Source for Non Residents
Application for non deduction or lower deduction of tax
 The payer may apply to the AO for determination
appropriate portion of the sum to be paid on which tax
has to be deducted – Sec 195(2)
 The payee may also apply to the AO for grant of a
certificate authorizing him to receive the amount without
deduction of tax at source – Sec 195(3)
 The assessee (i.e payee) may also apply to the AO for a
certificate for deduction of tax at lower rate U/s.197
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15. Tax Deduction at Source for Non Residents
Remittance of money abroad
Sec 195(6)
Formalities
Before
Outward
Remittance
Information to be
Certificate from CA to be
furnished in Form 15CA
obtained in Form 15CB
- To be filed electronically
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16. Anti Avoidance Provisions
 Transfer Pricing – Sections 92 to92F
– Applies to “International Transactions” carried
out between two or more “Associated
Enterprises”.
– Meaning of “Associate Enterprise” – One
enterprise participates directly / indirectly in the
management / control / capital of the other.
– Pricing of transactions shall be at “Arm’s
length”.
– 5% variation between the ALP and the actual
price is allowed
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17. Anti Avoidance Provisions
 Sec 94A - Black listing of “Tax Havens”
 Inserted by Finance Act 2011 w.e.f 1st June
2011
 Referred to as “Tool box of counter measures”
 To prevent “Tax Avoidance”
 Authorizes Government to black list non-
cooperative jurisdictions
 Penalize both Indian Assessee as well as the
Non Resident concerned
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18. Anti Avoidance Provisions
Salient features of Section 94A
 Government may specify certain non -
cooperative jurisdictions as “Notified
Jurisdictional Areas” (NJA).
 If an assessee enters in to a transaction with
a person in an NJA
– All parties to the transaction will be regarded as
“Associated Enterprises”
– The transactions will be considered as an
“International Transaction”
– All provisions of Transfer Pricing will apply
– Additional records may be prescribed by CBDT
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19. Anti Avoidance Provisions
 Tax Information Exchange Agreements
– About 13 TIEAs have been signed in recent
past
– Objective is to prevent round tripping of black
money
 Amendments to existing DTAAs
– Attempt is being made to amend DTAAs
already entered in to
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20. Anti Avoidance Provisions
ROUND TRIPPING
Using tax heavens and benami Non Residents
Mr.A an Indian BC Ltd in India
resident
AB Ltd
Sends funds invests
by hawala shares /
Rs.100 cr to debt in
Indian
A tax haven Invests in a Tax Haven company –
Deposits in AB Ltd. Rs.100 cr as loan and
Rs.10,000/-in equity owned by one
Local bank / more non residents
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21. Double Tax Avoidance Agreements
1. DTAA – Purpose and objectives
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22. Need for DTAA
Reason for
Double Taxation
Also taxed on
Resident of India
same income
Taxed on his
in the country where
Global Income
it accrues / arises
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23. Need for DTAA
Basic rule for
taxation
Source Rule
Residence Rule
“Principle of Situs”
Resident of a country Non Resident is taxed in
is taxed on his global the country where the
income income accrues / arises
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24. Need for DTAA
Types of Double
Taxation
Juridical Double Taxation Economic Double Taxation
Same person taxed on Two entities subject to
same income in more tax on the same income
than one countries in two more countries
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25. Need for DTAA
Juridical double taxations
Example
Company A
resident in USA
USA
Branch In India
India
Company A’s branch profits are subject to
tax in two countries:
(i) in USA, due to residence; and
(ii) in India, due to source.
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26. Need for DTAA
 Economic double taxation
Arises where one country applies its
transfer pricing rules.
Example Taxable profits
Company A
= US$ 5 million
USA
Loan ($100 Interest @ 5% p.a.
Million) ($ 5 million)
India
Taxable profits
= $ 2 million Company B
•If as per TP rules in India the arm’s length rate of interest should
be 4% p.a., it will reduce Company B’s interest deduction by $1 M.
• Company B’s taxable profits increase by $ 1 M to $ 3 M.
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27. Purpose of DTAA – Sec 90(1)
Sec 90(1)
Purpose
of
DTAA
Provide Promote
Exchange Collection
To avoid relief to mutual
of &
double doubly Economic
informatio Recovery
taxation taxed & Trade
n of Taxes
income relations
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28. Applicability of DTAA
Applicability
and effect of
DTAA vis-à-vis
Income Tax Act
Assessee who Income is Conflicting
is resident of taxed / provisions in
either or both taxable in both IT Act and
countries countries DTAA
More beneficial DTAA would
provision to override to
apply - assessee’s favor
Cir 333 02.04.1982 CIT v. ITC Ltd
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29. Double Taxation Avoidance
Agreement (DTAA)
Legal effect of
DTAA
Agreement between
Becomes part of law
two countries
Binding on both Gives rights to the
countries tax payer
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30. Double Taxation Avoidance
Agreement (DTAA)
Modes of
granting relief
in DTAAs
Exemption method Credit Method
Either of the countries Both countries will
tax, but resident country
will only tax the would give credit to
income foreign tax
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31. Double Taxation Avoidance
Agreement (DTAA)
Importance of
protocols and
notes
Amendments to existing
Clarify / expand / restrict
treaties are made
application of the treaty
through protocols
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32. Double Taxation Avoidance
Agreement (DTAA)
In absence of
DTAA –
Sec 91A
Unilateral relief Conditions
to assessee apply
Credit method applied Income must have Taxes should have
i.e deduction from tax accrued / arisen o/s been paid as per
is allowed India law of other country
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33. Double Tax Avoidance Agreements
Organization for Economic
Cooperation & Development
(OECD) Model Conventions (MC)
vs.
United Nations (UN) Model
Conventions
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34. Tax Treaty Model Conventions
The most practiced DTAA models are
the model treaties framed by -
 the Organization for Economic
Cooperation & Development [‘OECD’]
also referred to as OECD MC.
 the United Nations (UN MC).
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35. Double Taxation Avoidance
Agreement (DTAA)
Model treaties and commentaries
 Commentaries on OECD model treaty:
• Starting with the 1963 edition, the OECD model
treaty has been published with a commentary to
each article.
• The Commentaries have been referred to as an
aid to interpretation by the courts in many OECD
countries and in some non-OECD countries (e.g.
Malaysia).
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36. Double Taxation Avoidance
Agreement (DTAA)
Model treaties and commentaries
 Other international model treaties –e.g.
• ASEAN model.
• Andean model
 Some countries have published their own model
treaty – e.g.
• US model
• Netherlands model
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37. Double Tax Avoidance
Agreements
Articles
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38. Model DTAA - Articles
Table of Contents of OECD and UN-MC UN
Scope of Convention
Article 1 – Persons covered Unchanged
2 – Taxes covered. Unchanged
Definitions
Article 3 – General definitions
4 – Resident
5 – Permanent establishment.
Taxation of income
Article 6 – Income from immovable property Unchanged
7 – Business Profit
8 – Shipping, inland waterways & air transport
9 – Associated enterprises
10 – Dividends Unchanged
11 – Interest
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39. Model DTAA - Articles
Table of Contents of OECD and UN-MC UN
Taxation of income
Article 12 – Royalties / Fee for Technical Services
13 – Capital Gains
14 – Independent personal services Deleted in
OECD–MC 2000
15 – Income from employment Unchanged
16 – Director’s Fees
17 – Artistes and Sportsmen
18 – Pensions
19 – Government Service Unchanged
20 – Students
21 – Other Income.
Taxation of Capital
Article 22 – Capital.
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40. Model DTAA - Articles
Table of Contents of OECD and UN-MC UN
Methods for elimination of double taxation
Article 23A– Exemption method
23B– Credit method. Unchanged
Special provisions
Article 24 – Non-discrimination Unchanged
25 – Mutual agreement procedure
26 – Exchange of information
27 – Assistance in the collection of taxes Missing in UN-MC
28 – Members of diplomatic mission and
consular posts Missing in UN-MC
29 – Territorial extension.
Final Provisions
Article 30 – Entry into force
31 – Termination.
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41. Important Concepts to
Understand DTAA
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42. Important Concepts to
Understand DTAA’s
A Business carried on by a corporation, usually through an office
Branch
or other fixed place of business.
The situation in which resident investors bear the same tax
Capital-export burden whether they invest at home or abroad.
neutrality
Capital-import The situation in which residents investing in a source country bear
neutrality the same tax burden as other investors in that country.
The Commentary to the OECD Model Treaty or to the UN Model
Treaty. It explains the provisions of the Model Treaty and records
the reservations and observations of the member countries to
Commentary those provisions. The Commentary to the OECD Model Treaty is
very influential for the interpretation and application of tax treaties.
An official of a treaty country who is responsible for the resolution
Competent authority of disputes and issues of interpretation arising under a tax treaty.
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43. Important Concepts to Understand
DTAA’s
Contracting The Countries that are parties to a tax treaty.
States
Foreign taxes paid by a resident of a country are
Credit Methods credited against the residence country’s tax on the
resident’s foreign-source income.
Exemption Exemption from domestic tax of some or all foreign-
method source income derived by residents.
An exemption method under which certain foreign-
Exemption with source income is exempt from tax but is taken into
progression account in determining the rates of tax applicable to
other income.
Foreign affiliate A foreign corporation in which a domestic tax-payer has
a significant direct or indirect ownership interest (usually
10 percent or more of the shares).
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44. Important Concepts to
Understand DTAA’s
Tax practices that are adopted by a tax-haven country to
Harmful tax poach on the tax base of other countries by exploiting
competition the weaknesses in the international tax rules of those
countries.
An entity that is treated as a separate taxable entity
(usually as a corporation) in one country and as a
Hybrid entity
transparent or flow-through entity in another country.
The treatment by one country of the residents or citizens
Most-Favoured- of another country not less favourably than the
nation treatment treatment of the residents or citizens of any other
country (but not its own residents or citizens).
The treatment of non residents or foreigners by a
National
country not less favourably than the treatment of its own
treatment
residents or citizens.
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45. Important Concepts to
Understand DTAA’s
A generally-accepted notion that a country should tax
non residents, foreigners and foreign-owned domestic
Non- corporations in a manner that is the same as or is
discrimination functionally equivalent to the treatment afforded to
residents, citizens or domestically-owned corporation in
similar circumstances.
A rule under which a corporation is considered to be a
Place-of- tax resident of the country in which it is incorporated.
incorporation
test
A rule under which a corporation is considered to be a
Place-of- tax resident of the country in which it is controlled or
management test managed (usually where the board of directors meets
and exercise control over the affairs of the corporation).
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46. Important Concepts to
Understand DTAA’s
The deferral avoidance, or reduction of tax by lawful
Tax avoidance
means.
The reduction of tax by illegal means, usually involving
Tax evasion fraudulent non disclosure or willful deceit.
Countries which subject income (or some forms of
Tax havens income) or entities (or certain entities) to low or no
taxation.
The allowance of a credit for the amount of foreign
Tax Sparing taxes that were not paid because of a tax incentive or
holiday in the foreign country.
Thin Restriction on the deductibility of interest payments
capitalization made by corporations with excessive debt to equity
rules ratios to their substantial non resident shareholders.
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47. Important Concepts to
Understand DTAA’s
Rules in tax treaties that establish the residence of a
Tie-breaker rules dual-resident taxpayer in one country for treaty purposes.
The use of a tax treaty by a person who is not resident in
either of the treaty countries, usually through the use of
Treaty shopping
conduit entity resident in one of the countries.
A tax levied by the source country at a flat rate on the
gross amount of dividends, royalties, interest, or other
Withholding tax payments made by residents to non residents. The tax is
collected and paid to the government by the resident
payer.
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