You've worked abroad for years. You've paid taxes there. Now you're returning to India, and suddenly your worldwide income becomes taxable here too.
Does this mean paying tax twice on the same money?
Not if you understand how Double Taxation Avoidance Agreements work.
I've seen returning NRIs lose lakhs simply because they didn't know these provisions existed. Others saved significantly by timing their return correctly and filing the right forms. The difference often comes down to understanding a few key concepts-and acting on them before it's too late.
What is DTAA and Why Should You Care?
DTAA stands for Double Taxation Avoidance Agreement. It's a treaty between two countries that ensures you don't pay tax twice on the same income.
India has signed DTAAs with over ninety countries, including the US, UK, UAE, Singapore, Canada, Australia, Germany, and most places where NRIs typically reside.
Without DTAA, here's what could happen: You receive a pension from your UK employer. The UK taxes it. Then India, as your new country of residence, also taxes your global income-including that same pension. You'd effectively pay tax twice.
DTAA prevents this. It specifies which country gets to tax what income, and provides mechanisms for relief when both countries have taxing rights.
For returning NRIs, DTAA isn't just useful-it's essential for protecting your retirement corpus, investment returns, and any ongoing foreign income.
The RNOR Advantage: Your Tax-Free Transition Window
Before diving into DTAA specifics, understand this: when you return to India after extended NRI status, you don't immediately become a fully taxable resident.
You typically qualify for RNOR status-Resident but Not Ordinarily Resident. This applies if you were an NRI for nine out of the ten preceding years, or if you spent fewer than 730 days in India during the seven years before your return.
During RNOR years-usually two to three years after return-your foreign income isn't taxable in India unless it's received here or connected to an Indian business.
This is your golden window.
Any UK pension you receive abroad? Not taxable in India during RNOR. Capital gains from selling US stocks? Not taxable here if the proceeds stay overseas. Interest from Singapore bank accounts? Same story.
👉 Tip: Time your return strategically. Returning in April (start of the financial year) often maximizes your RNOR period. Use Belong's Residential Status Calculator to check your exact timeline.
Once you become ROR (Resident and Ordinarily Resident), your global income becomes taxable in India. That's when DTAA becomes critical.
How DTAA Actually Works
DTAA provides relief through three main methods:
Exemption Method: Certain income types are taxed only in one country, not both. For example, under some treaties, government pensions are taxable only in the paying country. If you receive a UK government pension, it may remain taxable only in the UK-even after you become an Indian resident.
Tax Credit Method: If both countries tax the same income, you pay tax in one country and claim credit in the other. Say your US dividends face withholding tax there. When you report this income in India, you can claim credit for the US tax already paid, reducing your Indian liability.
Reduced Rate Method: Instead of standard rates, DTAA specifies lower withholding rates. Interest income that would normally face higher TDS might be taxed at concessional rates under treaty provisions.
The specific treatment depends on the type of income and which country's DTAA applies. Each treaty is different.
Key Income Types and Their DTAA Treatment
Pensions
This is where returning NRIs often have the most at stake.
Under the India-UK DTAA, private pensions are generally taxable in your country of residence. Once you're an Indian resident, your UK workplace pension becomes taxable here-but you can claim credit for any UK tax already paid.
Under the India-US DTAA, private pension taxation follows similar residence-country principles. US Social Security, interestingly, is taxable only in the US and exempt in India.
Government pensions often receive different treatment. Many DTAAs specify that government service pensions remain taxable only in the paying country.
Interest Income
Most DTAAs reduce withholding tax rates on interest. If you have NRE fixed deposits or foreign bank accounts, the applicable DTAA rate may be lower than standard TDS rates.
Dividends
Dividend taxation varies by treaty. India-US DTAA allows the source country to withhold up to a specified rate, with credit available in the residence country. Understanding these provisions helps you plan whether to hold dividend-paying investments in India or abroad.
Capital Gains
Treatment differs significantly across treaties. Some DTAAs allow only the residence country to tax capital gains on securities. Others give taxing rights to the source country. Before selling foreign assets after returning, check the specific DTAA provisions.
Rental Income
Property income is typically taxable where the property is located. If you have rental property abroad, that country generally taxes the income first. India then taxes it as part of your global income, but allows credit for foreign tax paid.
The Documentation You Need
DTAA benefits don't apply automatically. You must claim them with proper documentation.
Tax Residency Certificate (TRC)
This is the foundation document. TRC proves you're a tax resident of a particular country and eligible for treaty benefits.
If you're returning from the UK, get your TRC from HMRC before leaving. Processing takes several weeks. From the US, you'll need IRS Form 6166. Each country has its own process.
Without TRC, claiming DTAA benefits becomes difficult or impossible.
Form 10F
This is an Indian income tax form that non-residents must file to claim DTAA benefits. It requires details about your tax residency status and the treaty provisions you're invoking.
Form 10F is filed electronically on the income tax portal. Submit it along with your TRC to any Indian payer who's deducting TDS from your income.
Form 67
This is how you claim Foreign Tax Credit in India. If you've paid tax abroad on income that's also taxable here, Form 67 lets you offset that foreign tax against your Indian liability.
File Form 67 before submitting your income tax return. Missing the deadline means losing the credit.
👉 Tip: Start your TRC application months before you plan to return. It's the single document that unlocks all DTAA benefits, and most people apply too late.
Common Mistakes That Cost Money
Not Getting TRC Before Leaving
Once you've relocated, obtaining TRC from your former country becomes complicated. You may no longer qualify as their tax resident. Apply while you're still there.
Missing Form 67 Deadline
Foreign Tax Credit must be claimed by filing Form 67 before your ITR due date. File late, and you forfeit the credit entirely-even if you legitimately paid tax abroad.
Wrong Currency Conversion
When claiming FTC, foreign tax must be converted to INR using the SBI telegraphic transfer buying rate on the last day of the month preceding when the tax was paid. Using wrong rates leads to incorrect claims and potential scrutiny.
Ignoring RNOR Benefits
Many returning NRIs start declaring global income immediately, not realizing they qualify for RNOR status. Get your residential status assessed correctly before filing.
Not Updating Status with Payers
If you're receiving income from India while abroad-say, rental income or FD interest-ensure payers know your correct status and applicable DTAA rates. Otherwise, they'll deduct TDS at higher standard rates.
A Practical Approach for Returning NRIs
Here's how I'd suggest approaching this:
Before you return:
Get TRC from your current country of residence. This is non-negotiable.
Review the specific DTAA between India and your country. Understand how your pension, investments, and other income will be treated.
Consider liquidating foreign assets during your final NRI year or upcoming RNOR period when gains may not be taxable in India.
During RNOR years:
Keep foreign income abroad if you don't need it in India. Income not received here isn't taxable during RNOR.
If you must bring money to India, consider RFC accounts to hold foreign currency.
Continue claiming treaty benefits on any Indian income that was taxed abroad.
After becoming ROR:
File Form 67 religiously to claim Foreign Tax Credit on any doubly-taxed income.
Report all foreign assets in Schedule FA of your tax return. Non-disclosure attracts penalties under the Black Money Act.
Use our Compliance Compass to ensure you haven't missed anything.
When DTAA Won't Help
DTAA isn't a magic solution. It has limitations.
If you establish a Permanent Establishment in India-significant business operations, not just passive investments-normal business taxation may apply regardless of treaty provisions.
Treaty shopping-creating artificial structures just to claim benefits-is prohibited. You need genuine tax residency, not just a visa.
Some income types may not be covered by specific treaties. Always check the actual agreement, not general summaries.
And remember: DTAA prevents double taxation, but it doesn't eliminate taxation. You'll still pay tax somewhere-usually in your country of residence for most income types.
The Bigger Picture
Managing your return to India involves many financial decisions. DTAA is one piece of the puzzle.
Consider how it interacts with your investment strategy. GIFT City investments, for instance, offer tax exemptions that may work better than DTAA for certain situations. NRI fixed deposits have their own tax treatment worth understanding.
The goal isn't just avoiding double taxation-it's optimizing your overall tax position across both countries during and after your transition.
Final Thoughts
DTAA exists to protect you. But protection only works if you claim it correctly, with proper documentation, filed on time.
Start early. Get your TRC before leaving. Understand your RNOR window. File Form 67 before every tax return deadline. Keep records of all foreign income and taxes paid.
The difference between those who save significantly and those who overpay often comes down to these basics.
Have questions about managing your return? Join our WhatsApp community where thousands of returning NRIs share experiences. Or download the Belong app to explore tax-efficient investment options for your transition.
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