For many Indians living and working in the United States, earning income from both countries can lead to a situation where the same income is taxed twice — once in India and again in the U.S. To avoid this, India and the United States have signed a Double Taxation Avoidance Agreement (DTAA). This agreement is designed to prevent double taxation and provide tax relief to individuals and businesses operating in both countries.
In this blog, we’ll explain how the DTAA between India and the USA works, its key benefits, and how you can claim its advantages.
What is DTAA?
DTAA is a tax treaty signed between two countries to avoid taxing the same income twice. The dtaa with usa ensures that residents of one country who earn income in the other country are not unfairly taxed on the same income in both places.
This agreement is especially important for Non-Resident Indians (NRIs) living in the USA who earn income from India — such as interest, rent, dividends, or capital gains.
Benefits of DTAA with USA
1. Avoidance of Double Taxation
Under DTAA, income is either:
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Exempted in one of the countries, or
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Taxed in both countries, but the taxpayer can claim a tax credit for the tax paid in one country while filing returns in the other.
2. Reduced TDS Rates
For NRIs in the USA, TDS (Tax Deducted at Source) on income earned in India can be reduced under DTAA:
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Interest Income: 15%
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Dividends: 15%
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Royalties and Technical Fees: 10–15%
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Capital Gains: Taxation depends on the nature and duration of the asset held.
3. Tax Credit in the USA
If you pay tax in India on Indian income, the U.S. Internal Revenue Service (IRS) allows you to claim a credit for those taxes while filing your U.S. tax return, thereby avoiding double tax liability.
Key Provisions of the India-USA DTAA
✅ Permanent Establishment (PE)
Businesses are taxed in the other country only if they have a permanent establishment, such as a branch, office, or fixed place of business.
✅ Exchange of Information
Both countries share tax-related information with each other to reduce tax evasion.
✅ Non-Discrimination
The agreement ensures that foreign taxpayers are not treated unfairly compared to residents.
Documents Required to Claim DTAA Benefits
To claim DTAA benefits in India, you need to submit:
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Tax Residency Certificate (TRC) from the USA
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Form 10F (basic details like name, address, nationality)
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PAN (Permanent Account Number) in India
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Self-declaration that you do not have a permanent establishment in India (in some cases)
Real-Life Example
Let’s say you’re an NRI living in the USA and you earn ₹5,00,000 as interest income from your NRO fixed deposit in India. Normally, Indian banks deduct TDS at 30%. But under DTAA, TDS on interest is capped at 15%.
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You submit your TRC, PAN, and Form 10F to the bank.
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The bank deducts only 15% instead of 30%.
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You report the Indian income on your U.S. tax return and claim a foreign tax credit for the 15% already paid in India.
This helps you save tax and avoid paying it twice.
Conclusion
The DTAA with the USA is a valuable agreement that simplifies the taxation process for Indians living in the U.S. It helps NRIs minimize tax outflow, avoid double taxation, and maintain legal compliance across jurisdictions.
If you’re an NRI with income in both India and the U.S., proper tax planning using DTAA provisions can result in significant savings. However, the rules can be complex, and mistakes can lead to penalties. That’s why it’s best to seek professional help.
To ensure smooth tax compliance and maximum DTAA benefits, connect with Dinesh Aarjav & Associates – your trusted partner for NRI and international taxation services.
