Karan (name changed) in Frankfurt read an old blog post that told him he could simply “pick whichever DTAA method is most beneficial” each year, exemption, deduction, or tax credit, like choosing from a menu. When his CA reviewed his return, she had to explain that the method isn’t really his to choose freely. It’s determined by the specific article in the India-Germany treaty covering that particular type of income. What he could choose was something else entirely: whether to apply the treaty at all, or fall back on ordinary Indian tax law, whichever worked out better.
That distinction, treaty-vs-domestic-law choice versus method-vs-method choice, is where most DTAA content goes wrong.
⚡ Quick Answer
DTAA prevents the same income being taxed twice, once in India and once in your country of residence. Under Section 90(2) of the Income Tax Act, you can choose whichever is more beneficial for you overall, the treaty provisions or ordinary domestic tax law, but you cannot freely pick a relief method for each income type as if from a menu. The method itself, exemption in one country or a foreign tax credit, is fixed by the specific article of the treaty covering that income category. To claim any DTAA benefit you need a Tax Residency Certificate, Form 10F filed electronically, and PAN, submitted before the income flows, not after.
Read about – NRI TDS
What Double Taxation Actually Looks Like
If you’re an NRI earning income in both India and your country of residence, that income can, absent any relief, be taxed twice, once by India as the source country, and again by your resident country on your global income. The classic case is an NRI with Indian rental income or interest, which India taxes at source, while the resident country separately taxes the same income as part of worldwide income. DTAA exists specifically to prevent that double bite.
What DTAA Actually Is
India has signed Double Taxation Avoidance Agreements with roughly 85 to 90 countries. Each treaty specifies, article by article and income type by income type, which country gets primary taxing rights and how relief is delivered where both countries would otherwise tax the same income. This is the part that gets flattened into oversimplified advice: the treaty is not a single blanket rule, it’s a detailed document where dividends, interest, capital gains, salary and business income can each be treated completely differently.
Documents You Need Before Claiming Anything
A Tax Residency Certificate from the tax authority of your country of residence, confirming your status there for the relevant year. Form 10F, filed electronically on the Indian income tax portal, providing details a foreign TRC often doesn’t fully capture, such as your Tax Identification Number and the period of residency. A self-declaration confirming your country of residence for the relevant financial year and that DTAA applies to your situation. Self-attested copies of your PAN card and passport. All of this needs to be submitted to the payer, bank, tenant, AMC, before the income is paid, so the correct treaty rate can be applied at source rather than the default domestic rate, which then needs to be recovered through a refund.
Must Read – NRI Mutual Fund Tax
The Two Real Methods, and the Choice You Actually Have
You Don’t Pick the Method. You Pick Treaty vs. Domestic Law.
Under the exemption method, specific income is taxed in only one of the two countries, the treaty article decides which, and the other country exempts it entirely. Under the tax credit method, the income can be taxed by both countries, but your resident country grants a credit for the tax already paid in India, up to the lower of the two amounts. Which of these two methods applies to a given piece of income is fixed by the treaty article covering that income type. It is not a personal preference you exercise every filing season.
What Section 90(2) actually gives you is the choice between applying the treaty provisions or applying ordinary Indian domestic law, whichever produces a better result overall. That is real flexibility. Picking a relief method freely, article by article, is not.
A separate deduction-style approach, where foreign tax paid is treated as a deductible expense against total income rather than credited directly, exists in limited contexts but is neither the norm under Indian DTAA practice nor typically the better outcome compared to a proper foreign tax credit. Treat it as an edge case, not a standard third option to weigh equally against the other two.
Why the Oversimplified Version Persists
Karan is thorough with his own work, he’s an engineer who reviews specifications line by line professionally. The gap here wasn’t carelessness, it was false equivalence simplification, the tendency to collapse a genuinely conditional rule (“the method depends on the treaty article and income type”) into an unconditional one (“pick whichever method you like”) because the simpler version is easier to remember and repeat. Simplified content spreads faster than accurate content, and after enough repetition, the simplified version starts to feel like the actual rule rather than a rough approximation of it.
The real flexibility DTAA offers, treaty versus domestic law, whichever wins, is genuinely useful and worth understanding precisely. The fake flexibility, freely picking a relief method, just sets people up to file something a tax officer can correctly challenge.
Frequently Asked Questions
Can I choose whether to use the exemption method or the tax credit method for my Indian rental income?
No, not freely. Whichever method the specific treaty article assigns to that income type is the one that applies. What you can choose is whether to rely on the treaty at all or on domestic Indian law, whichever produces a better outcome for you.
What is the difference between Section 90 and Section 91 relief?
Section 90 applies where a DTAA exists between India and your country of residence, bilateral relief under the treaty terms. Section 91 provides unilateral relief where no DTAA exists at all, calculated differently and without needing a TRC.
Do I need a Tax Residency Certificate every year?
Yes. TRC and Form 10F are both period-specific and need to be filed fresh for each relevant financial year, not submitted once and assumed to carry forward indefinitely.
What happens if I don’t submit DTAA documentation before the income is paid?
The payer withholds tax at the default domestic rate rather than the treaty rate. You can still claim the difference back by filing your Indian return, but that means waiting out a refund cycle instead of getting the correct rate from day one.
Does GAAR affect DTAA claims?
Yes. India’s General Anti-Avoidance Rule can override treaty benefits where a structure is judged to exist primarily to obtain a tax advantage, even with a valid TRC in place. Genuine, substance-backed residency and income arrangements are not the target of GAAR, but it is a real constraint worth being aware of for complex structures.
Not sure which DTAA article actually governs your specific income?
We check the treaty text for your specific country and income type, and file the TRC and Form 10F correctly, before the withholding happens, not after.
DTAA is not a menu you order from freely. It’s a set of rules you’re entitled to, once you read the specific clause that actually applies to you.
The flexibility that matters is real. It’s just narrower than the version that gets repeated.
💬 Your Turn
Have you actually checked which DTAA article applies to your specific Indian income, or assumed a general rule covers it? Tell us what you found.
I was working in US on visa from Oct’2016 to Nov’22. I had a 1 year certificate of deposit with bank in USA that expires in end of 2023. Currently, I left US in Nov’22 and stuck in my home country due to visa issue and wont be back in US for year 2023. My queries are as below:- 1) Would I need to file my taxes in US as non-resident for the CD interest that I will receive for 2023 2) I suppose I need to fill W8-BEN with bank and as my home country is India what should I fill as withholding taxes in question 10
As you’ve now left the US and are outside for the rest of 2023, once you meet the substance test for non-resident alien status there, CD interest is generally exempt from US withholding, bank deposit interest paid to a nonresident alien isn’t taxed by the US at all, treaty or not. On the W-8BEN, you’d list India as your country of residence for treaty purposes, though this particular interest doesn’t usually need a treaty claim since it’s exempt under US domestic law already. Worth confirming the specifics with a US tax preparer given your visa timeline, but the core position is favourable, not something to worry over.
Do you also help with advice on tax planning and DTAA?
Yes, this is exactly the kind of thing we help NRIs with, working out which treaty article actually applies to your income, getting the TRC and Form 10F filed correctly and on time, and structuring things so you’re not overpaying and then chasing a refund. Happy to take a closer look at your specific situation if you’d like to talk it through.
Need to file itr.
Happy to help you think through this. If you can share a bit more, which financial year, your residential status for that year, and the types of income involved, that will help point you to the right form and process. Or feel free to reach out directly and we can walk through it properly.
Dear Sir,
As we know, companies are deducting TDS on dividend income that is at the rate of 20.8% for nri’s.
We do get communication from the companies to furnish 10F,
tax residency certificate and some other forms along.
After sending all the documents we get one more email that we have updated the details in records.
But, when we get the dividend, it comes with the deduction of 20.8% only. No use of furnishing any details.
I have written about this to the ministry of finance, tax department and tried to reach finance minister.
None of those departments respond.
Just for the name sake all the formalities. None of them work.
This is a genuinely common frustration, and unfortunately filing 10F and the TRC with the company or its RTA does not always translate into the correct rate being applied at the payment stage, the two processes aren’t always well connected internally. If the treaty rate still isn’t reflected after documentation is on file, the practical route is to let the excess sit as TDS and claim it back through your Indian return with Form 67, rather than continuing to chase the payer. Not a satisfying answer, but it is the reliable one.
Could you kindly provide some insight into RBI Direct Investments which was recently launched and even NRI can participate. How to bid? How much is the minimum we have to invest? The site looks a bit complicated, seeking some guidelines on bidding in RBI direct.