Government of India has signed the Inter Governmental Agreement (IGA) with the USA on July 9, 2015, for improving international tax compliance and implementing the Foreign Accounts Tax Compliance Act.The IGA provides that Indian Financial Institutions (FIs) will provide the necessary information about reportable Depositors to the Indian Tax Authorities, who will in turn transmit the same to the US Authorities. India has also signed the “OECD Model Competent Authority Agreement” for sharing of tax information in accordance with multilateral “Common Reporting Standard” (CRS) on June 3, 2015. These developments have resulted in compliance and reporting obligations on Financial Institutions including our Bank.
In this regard, all the required amendments to the Income Tax Rules have been made and Banks are required to furnish information regarding deposits held by U.S Reportable persons and other reportable persons to the Income Tax Department online, periodically. To comply with the reporting requirements certain additional information relating to tax residency has to be submitted by depositors, under the provisions of FATCA / CRS.
Double Taxation Avoidance Agreement (DTAA)
What is it?
A DTAA is a tax treaty signed between two or more countries. Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income. A DTAA applies in cases where a tax-payer resides in one country and earns income in another. DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc. India has DTAAs with more than eighty countries, of which comprehensive agreements include those with Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK and US.
Why is it important?
DTAAs are intended to make a country an attractive investment destination by providing relief on dual taxation. Such relief is provided by exempting income earned abroad from tax in the resident country or providing credit to the extent taxes have already been paid abroad. DTAAs also provide for concessional rates of tax in some cases. For instance, interest on NRI bank deposits attract 30 per cent TDS (tax deduction at source) here. But under the DTAAs that India has signed with several countries, tax is deducted at only 10 to 15 per cent. Many of India’s DTAAs also have lower tax rates for royalty, fee for technical services, etc.