Legal double taxation: This means taxing the same income in the hands of a single taxpayer in both countries. For example, interest earned in India on term deposits held in India will be taxable in India on the basis of withholding tax. The same interest is taxable in the country of origin. NRIs who earn income in India have to pay taxes in India. Generally, these taxes are deducted by the person making the payment via TDS. The same income earned in India must also be reported by the NRI in their home country in accordance with the laws in force in their home country. The country of origin will tax this income again. This leads to double taxation. India has signed double taxation treaties with more than 90 countries to avoid double taxation. Indian tax law offers a taxpayer the possibility to claim contractual advantages over the provisions of national tax law and vice versa. India and the United States have concluded a double taxation agreement (Tax Convention) and FATCA compliance agreements. Assuming you qualify as a “resident and ordinary resident” of India and a “non-resident” of the United States, you would qualify as a “resident” of India under the India-U.S. Double Taxation Convention (DTAA).

If an Indian national is also a resident of the United States in a taxation year, severance rules are applied under the India-U.S. double taxation treaty to determine which country is entitled to tax. This can result in income taxation in both countries. However, in most cases, the country of origin has a right to primary taxation (or right to withholding tax), and the country where the taxpayer is resident grants a credit for foreign tax paid and levies additional taxes up to a loss of tax rate. In addition to the tax burden in one country, residency rules create an information reporting burden that is often ignored by wealthy individuals moving to another jurisdiction. Transfer of capital assets from an Indian family business to the next generation. Wealthy Indians and families around the world typically use trusts or foundations as models for isolating Indian family assets. Ownership of Indian family businesses is held by these fiduciary structures.

While a fiduciary structure offers mechanisms for asset protection and good governance, there is a real risk that any foreign structure will be classified as an Entity based in India if it is managed and controlled by persons in India. A trust is considered an Indian tax resident when some or all of the control and administration is exercised in India. Taxation depends on the form of trust – public or private. Let us illustrate how the DTA can help avoid double taxation. This article will deal with what double taxation is and how it can be avoided under the law. # DTAA takes precedence over the provisions of the Indian Income Tax Act 1961, so NRI can claim taxation in India under the Indian Income Tax Act 1961 or DTAA, whichever is more advantageous to it. In order to avoid double taxation, countries conclude a DTA with other countries. The DTA was a form of agreement between contracting countries whose main objective was to regulate tax matters and to provide relief from double taxation in order to alleviate the difficulties caused by double taxation of the same income. It was important to note that the Commission offered relief against legal double taxation. India has signed DTA agreements with many countries. Mr.

X, a resident of India, works in the United States. In return, Mr. X receives some compensation for work done in the United States. Now the U.S. government levies federal tax on income earned in the United States. However, it is possible that the GOI may also levy income tax on the same amount, i.e. on remuneration earned abroad, given that Mr X resides in India. To save innocent taxpayers like Mr. X of the adverse effects of double taxation, governments of two or more countries may enter into a treaty known as a double taxation agreement (DBAA). The Indian government has concluded double taxation treaties (tax treaties) with several countries with the main aim of developing a system that allows the respective countries to allocate the right to tax different types of income on an equitable basis. Tax treaties aim to fully protect taxpayers against double taxation and also aim to prevent discrimination between taxpayers on the international stage.

NRI/PII would therefore be well advised to use such agreements in tax planning for their investments in India. A comparison of tax rates according to the DTA is as follows: Economic double taxation: This means the taxation of the same income in more than one hand. For example, expenses are not allowed in one country, but are considered taxable in the hands of the beneficiary, resulting in the taxation of the same income twice in both hands. Most countries adopt resident status as a tax base, regardless of whether the taxpayer is a natural or legal person. At the same time, however, the principle of the source is also adopted in order to tax the non-resident with the source on its territory. This leads to double taxation. Reflections on the tax treaty. The treaty framework prevents double taxation of the same income by allowing an Indian tax resident to claim a credit on his Indian tax payable for income tax paid in the United States on income earned in that country. It provides guidance on permanent establishment rules and sets advantageous tax rates for income streams, including dividends, interest, royalties and fees for technical services compared to the high marginal personal tax rates in India.

However, benefits under the tax treaty are only available if the limitation of benefits section does not deny contractual benefits because a taxpayer does not meet the ownership requirements set out therein. The United States has not signed the MI under the BEPS project and, therefore, the new regulations do not affect the Indo-United States. Tax treaties, unless both countries agree to their adoption. According to the terms of the tax treaty, exemption from double taxation may be claimed either by the exemption method or by the tax credit method. Both methods are explained below: Although the United States follows a global income model, there are still tax treaties, residency rules that can affect the taxation of certain items such as dividends, income, pensions, and social security. Corporate taxation should not be chosen solely because of the new low corporate tax rate compared to direct taxation, as a 20% deduction is possible for eligible corporate income generated by intermediary companies under certain conditions. This results in an effective tax rate of 29.6% out of 37%. This rate is also close to the maximum marginal tax rate in India, which is 30%. U.S. Settling Trust Rules.

A large number of first- and second-generation Indians are based in the United States with family businesses and assets in India. .