Double Taxation
Double taxation occurs when the same income or profit is taxed in two different jurisdictions — or twice within the same jurisdiction — with India addressing this both domestically (e.g., DDT repeal, buyback tax reforms) and internationally through a network of Double Taxation Avoidance Agreements (DTAAs) with over 90 countries.
In the domestic context, double taxation historically arose most visibly through the Dividend Distribution Tax (DDT) mechanism. Companies paid corporate tax on profits, and then the dividend distributed to shareholders was again taxed at the company level through DDT, with the shareholder receiving dividends exempt in their hands. This created a situation where the same earnings were taxed twice — once as corporate income and once as dividends — before reaching investors. The abolition of DDT in Budget 2020 and the shift to classical taxation (dividends taxable in the hands of shareholders at their applicable slab rates) resolved this structural duplication from the company's perspective, though it increased the effective tax on dividend income for high-bracket individuals.
In the international context, double taxation is a central challenge for cross-border income flows. An Indian resident earning income from investments or employment in a foreign country faces potential taxation in both India (as a resident taxable on global income) and the source country (where the income arises). Without relief mechanisms, this dual claim would constitute prohibitive taxation, discouraging cross-border trade, investment, and labour mobility.
India has signed DTAAs with over 90 countries as of 2026, covering the United States, United Kingdom, Mauritius, Singapore, UAE, Germany, Japan, France, and others. Each DTAA specifies which country has taxing rights over particular income categories (dividends, interest, royalties, capital gains, business profits, employment income) and whether the other country must exempt the income or provide a tax credit. The 'residence-based' credit method — whereby the residence country taxes global income but credits the tax already paid abroad — is more common in Indian treaties than the 'exemption method'.
The India-Mauritius DTAA was historically significant for FPI flows because it provided capital gains exemption to Mauritius-resident entities selling Indian shares. A large share of FPI investment was routed through Mauritius holding companies to exploit this benefit. The DTAA was renegotiated in 2016, with source-based taxation of capital gains on shares acquired after 1 April 2017 applying in India, significantly reducing the Mauritius routing advantage. Similar changes were made to the India-Singapore DTAA, reflecting India's broader effort to assert source-country taxation rights in line with OECD Base Erosion and Profit Shifting (BEPS) guidelines.
For individual taxpayers, DTAA relief is accessed by filing Form 67 in the Indian ITR, which discloses foreign income and the tax paid abroad. The credit claimed cannot exceed the Indian tax payable on the foreign income. A Tax Residency Certificate (TRC) from the foreign country is mandatory for claiming DTAA benefits, ensuring that treaty shopping — using a third-country entity as a conduit to access favourable treaties — is curbed.