DTAA Between India And Bangladesh: Key Tax Benefits, Capital Gains & Agreement Rules

The DTAA between India and Bangladesh is a crucial bilateral treaty designed to ensure that individuals and businesses do not pay tax on the same income in both countries. This agreement is significant for Non-Resident Indians (NRIs), investors, and companies operating across the two nations, as it provides clear rules for taxation and helps prevent fiscal evasion. By understanding the DTAA for income tax, taxpayers can effectively manage their financial obligations and leverage the benefits offered under the treaty.

DTAA Between India and Bangladesh - Quick Info

This tax treaty provides a structured framework for the taxation of cross-border income, promoting economic cooperation and clarity for taxpayers in both nations.

Objective of the DTAA Between India and Bangladesh

The primary goal of this tax treaty is to create a fair and predictable tax environment that supports cross-border economic activities and investment flows.

The main objectives of the DTAA agreement between India and Bangladesh are:

• Prevention of Double Taxation: To ensure that income earned in one country by a resident of the other is not taxed twice.
• Promotion of Bilateral Trade: To encourage and facilitate smoother trade, investment, and economic cooperation between the two nations.
• Prevention of Fiscal Evasion: To establish a framework for mutual assistance and exchange of information between the tax authorities to prevent tax avoidance and evasion.
• Clarity and Certainty: To provide clear rules for the taxation of different types of income, reducing ambiguity for taxpayers.
• Fair Distribution of Tax Revenue: To allocate taxing rights between the two countries rationally and equitably.

Significance of DTAA for India and Bangladesh

This agreement holds immense importance for both countries, strengthening their economic ties and providing tangible benefits to their residents and businesses.

The significance of the India-Bangladesh tax treaty includes:

• Encourages Foreign Investment: It provides tax stability, making cross-border investments more attractive. For NRIs, this is crucial when considering property investment in top Indian cities.
• Facilitates Movement of Professionals: It offers clear tax rules for professionals and employees working in the other country, simplifying their financial planning.
• Boosts Technology and Skill Transfer: By providing lower tax rates on royalties and fees for technical services, it encourages the sharing of technology and expertise.
• Reduces Litigation: The clear allocation of taxing rights helps in reducing disputes and litigation between taxpayers and tax authorities.
• Strengthens Diplomatic Relations: A robust tax treaty is a cornerstone of strong economic and diplomatic relationships between nations.

India-Bangladesh DTAA Tax Rates

The treaty specifies maximum tax rates that the source country can apply on certain types of income, which are often lower than the standard domestic rates.

The concessional DTAA rates between India and Bangladesh are a key feature of the agreement, providing significant relief to taxpayers. [1]

Taxes Covered under the DTAA Between India and Bangladesh

The tax treaty between India and Bangladesh covers various types of income to provide broad relief from double taxation. Here’s how it applies to key income streams:

• Dividends: A resident of one country receiving dividends from a company in the other country is taxed at a reduced rate of 10% or 15% in the source country, preventing the full domestic tax rate from being applied.
• Interest: Interest income arising in one country and paid to a resident of the other is taxed at a maximum rate of 10% in the source country. This provides relief to lenders and investors. Understanding these rules is vital, especially when dealing with taxation rules for NRO accounts.
• Royalties: Income from royalties for the use of patents, trademarks, or copyrights is taxed at a maximum rate of 10% in the source country, encouraging creative and intellectual property sharing.
• Salaries: Salary income is generally taxed in the country where the employment is exercised. However, exemptions apply if the employee spends short periods in the other country (less than 183 days) and meets other specific conditions.
• Capital Gains: The taxation of capital gains depends on the type of asset sold. This is a vital area for property transactions.

Taxation on Capital Gains under the DTAA Between India and Bangladesh

The treaty provides clear guidelines on which country has the right to tax capital gains, which is especially relevant for property investments by NRIs.

Here are the key principles for taxing capital gains under the DTAA between India and Bangladesh income tax rules:

• Immovable Property: Gains from the sale of immovable property (like land or a house) are taxed in the country where the property is situated. This makes understanding TDS on the sale of property by an NRI essential.
• Movable Property of a Permanent Establishment (PE): Gains from the sale of assets that are part of a business's permanent establishment are taxed in the country where the PE is located.
• Shares: Gains from the sale of shares in a company are generally taxed in the country where the seller is a resident, unless the company's assets primarily consist of immovable property. When NRIs buy property in India, it's crucial to perform thorough legal due diligence.
• Other Assets: For any other assets not specifically mentioned, the right to tax the capital gains rests with the country where the seller is a resident.

Taxation on Employment Income Under DTAA

The agreement contains specific rules for individuals earning a salary, commonly known as the "183-day rule," to avoid double taxation on their employment income.

The rules for taxing employment income are as follows:

• Primary Rule: Salary is taxed in the country where the employment is actually performed (the country of work).
• Exemption (The 183-Day Rule): The income is taxed only in the individual’s country of residence if all three of the following conditions are met:
  • The individual is present in the country of work for a period not exceeding 183 days in the relevant fiscal year.
  • The salary is paid by, or on behalf of, an employer who is not a resident of the country of work.
  • The salary is not borne by a permanent establishment that the employer has in the country of work.

What are the Documents required to claim DTAA TDS?

To claim the benefits of lower tax deduction at source (TDS) under the DTAA, certain documents must be provided to the payer of the income.

Here is a list of the essential documents:

• Tax Residency Certificate (TRC)
• Self-attested Form 10F
• Self-declaration of not having a Permanent Establishment (PE) in India
• Self-attested copy of the PAN Card

How to Claim DTAA Benefits?

The procedure to claim benefits under the treaty involves submitting the required documents and following the correct tax filing procedures in both countries.

Here is how residents of each country can claim the benefits:

• In India (for Indian residents earning in Bangladesh):
  • When filing your income tax return in India, include the income earned in Bangladesh.
  • Claim Foreign Tax Credit (FTC) for the taxes already paid in Bangladesh on that income.
  • You must file Form 67 in India before the due date of filing your tax return to claim FTC.
• In Bangladesh (for Bangladeshi NRIs earning in India):
  • To avail a lower TDS rate in India, submit the required documents (TRC, Form 10F, etc.) to the Indian payer. This is where a Lower TDS certificate for NRIs can be beneficial.
  • When remitting money from India, the payer may need to file Form 15CA and 15CB.
  • When filing your tax return in Bangladesh, report your global income (including Indian income) and claim a tax credit for the taxes paid in India.

DTAA Impact on NRIs, Investors, and Businesses

The treaty has a profound and positive impact on various stakeholders by creating a more favourable environment for cross-border financial activities.

• For NRIs: It simplifies the income tax rules for NRIs by preventing their income (like interest from NRO accounts or capital gains from property) from being taxed in both countries. It also clarifies issues like gift tax implications for NRIs in India.
• For Investors: It reduces the tax burden on dividends and interest, leading to a higher return on investment and encouraging capital flow between the two nations.
• For Businesses: It provides certainty on how business profits will be taxed, ensuring that profits are only taxed in the source country if the business has a Permanent Establishment there.

How NoBroker Can Help with NRI Services?

Understanding the complexities of the DTAA between India and Bangladesh is essential for effective financial planning, especially when it comes to property transactions. NoBroker offers a suite of exclusive services for NRI property owners, providing expert guidance on taxation, legal due diligence, and property management. Our dedicated team helps NRIs navigate the challenges of buying or selling property, ensuring full compliance with Indian laws and the provisions of the DTAA, making your cross-border investments seamless and secure.

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