A double Tax Avoidance Agreement (DTAA) is a treaty between two countries that aims to avoid double taxation on the same income. This agreement benefits non-resident Indians (NRIs) who are selling property in India. The Indian government requires an NRI who sells a property in India to pay taxes since the property is located in India. Additionally, the country where the NRI is a resident may also charge taxes on their global income. This could result in the NRI being taxed twice on the same income, leading to a significant loss.
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To prevent double taxation, India has signed DTAA agreements with many countries where people of Indian origin reside. This agreement ensures that NRIs only pay taxes in one country, either in India or in the country of their residence, depending on the tax rate.
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For example, if an NRI sells a long-term property in India (held for two years or more), they will be required to pay approximately 23% tax in India. Suppose the country of their residence charges a 30% tax on such transactions. In that case, the NRI will only have to pay 7% tax in their country of residence, resulting in a total tax payment of 30% (7% in their country of residence and 23% in India).
The DTAA agreement helps NRIs avoid unnecessary taxes or double taxation on the same income. This benefits both the country of their origin and the country of their residence, as it prevents the economy from becoming closed.
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When filing taxes, NRIs need to identify the specific DTAA agreement between India and their country of residence and determine the applicable article number. They can seek the help of an attorney or tax lawyer to ensure that they file their taxes correctly and take advantage of the benefits of the DTAA.
In conclusion, NRIs selling property in India can benefit from DTAA agreements by avoiding double taxation and paying taxes only in one country, depending on the tax rates. They can seek the help of a tax professional to ensure that they file their taxes correctly and take advantage of the benefits of the DTAA.