DTAA (Double Tax Avoidance Agreement)
A Double Tax Avoidance Agreement (DTAA) is a bilateral treaty entered into by India under Section 90 of the Income Tax Act, 1961 with another country to allocate taxing rights over various categories of income and prevent the same income from being taxed twice — once in India and once in the country of the taxpayer's residence.
India has one of the largest networks of DTAAs globally, having signed agreements with over 90 countries. These treaties are negotiated by the Ministry of Finance and once notified through a government gazette, they override the provisions of the Income Tax Act to the extent they are more beneficial to the taxpayer. The principle that treaty provisions override domestic law — unless the General Anti-Avoidance Rule (GAAR) or treaty limitation of benefits clauses apply — is enshrined in Section 90(2).
For equity investors and NRIs, DTAA provisions are most relevant in determining the tax treatment of: dividend income, interest income, capital gains from sale of Indian shares, fees for technical services, and royalties. Different DTAAs allocate these categories differently. For example, the India-UAE DTAA (revised treaty effective from 2007) provided that capital gains from Indian securities would be taxable only in UAE, making UAE-resident investors exempt from Indian capital gains tax on Indian stocks — an arrangement that attracted significant portfolio flows through that jurisdiction.
The concept of the Tax Residency Certificate (TRC) is tightly linked to DTAA. From Assessment Year 2013–14, an NRI or foreign entity seeking DTAA benefits must furnish a TRC from the country of residence and self-declare in Form 10F. Without a valid TRC, the DTAA benefits are denied by the tax authorities.
The India-Mauritius DTAA was one of the most widely used treaty channels for foreign investment into India for three decades, providing capital gains exemption on Indian equities for Mauritius-resident entities. The treaty was renegotiated and amended through a Protocol signed in May 2016, which phased in source-based capital gains taxation over 2017–2019. From April 1, 2019, capital gains from Indian equities held by Mauritius entities became fully taxable in India — effectively closing one of the most significant treaty-based investment routing structures.
GAAR provisions, introduced by the Finance Act 2012 and made applicable from Assessment Year 2018–19, empower Indian tax authorities to disregard arrangements that have no commercial substance and are entered into primarily to obtain DTAA benefits. GAAR operates as a backstop to prevent abusive treaty shopping, and its interaction with specific DTAA articles continues to generate significant jurisprudence at the ITAT and High Court levels.