DTAA: Key Insights for Streamlining NRIs' Tax Strategy

Indian citizens living abroad are classified as non-residents (NRIs) under the Income Tax Act, 1961, based on their stay in India.

- Hemen Asher

Recently, NRI tax return filings have increased, driven by changes in tax residency rules and a focus on global transparency. NRIs are now more proactive in reporting Indian-sourced income and claiming tax relief under the act and the Double Taxation Avoidance Agreement (DTAA). NRI tax return filings rose 47%, from 4.9 lakh in FY20 to 7.2 lakh in FY24.

DTAA framework for relief: Double taxation occurs when an NRI's income is taxed in India and their country of residence. DTAAs are bilateral treaties outlining each country's rights to tax specific income streams, resolving conflicts and ensuring fair taxation. These agreements aim to: (i) Prevent double taxation; (ii) Offer tax relief for payments made in the other country; (iii) Promote transparency and curb tax evasion; (iv) India has DTAAs with 96 countries, helping NRIs reduce overall tax liabilities.