Double taxation is a situation in which interest gets taxed twice. It can get done either economically or legally. If income or portion of it is taxed double in the same country on two natural persons, there is double taxation. Alternatively, legal double taxation will occur if the income received outside India gets taxed twice on the same person, once away and once in the home country. This unique position puts an unreasonable burden on taxpayers if their income gets double taxed.
What is double taxation?
The Double Taxation Treaty or DTAA is a double taxation treaty approved between India and another nation (or more than one country). Taxes pay their revenue from the country of origin and residence. Allows you to avoid double taxation. Currently, India has double taxation treaties with more than 80 nations worldwide.
What is the need for the same?
The need for DTAA is due to an imbalance in tax gathering on the total income of natural persons. You can pay income tax if you do business abroad in either case. For example, if you move from India to another country while leaving a source of income such as deposit interest here, both India and your current country of residence will charge interest based on your total consolidated income. You can pay double taxation on the same income in such a scenario. It is a convenient place for taxpayers to use DTAA.
The main idea following DTAA or double taxation agreements with different nations is to reduce the possibility of tax evasion for taxpayers in one or both countries where bilateral or multilateral DTAA agreements have gotten signed. The withholding tax reduction benefits taxpayers as it allows them to pay lower TDS for interest, loyalty, or dividend income.