Double taxation is imposition of two or more taxes on the same income (in case of IT), assets (in case of Capital taxes) or any financial transaction ( in case of sales taxes) in different countries. Double taxation occurs mainly due to overlapping tax laws & regulations of countries where an individual does business. when an Indian business entity makes a profit or some taxable gain in another country, it may be required to pay Tax on that Income in India, as well as in country in which income was made. 

Double Taxation is also common in MNC's (or employees deputed abroad) where it is not equitable for a taxpayer to bear burden of tax in both countries on a single income. To protect Indian tax payers from this practice, indian government had entered into tax treaties, known as Double Taxation Avoidance Agreement (DTAA) with about 79 countries.

TYPES OF DOUBLE TAXATION

• 1. Economic double taxation  

          Same economic steam of income taxed in two or more states but in the hands of different taxapayers 

• 2. Juridicial double taxation

1. Two or more states levy taxes on same entity on same income for identical periods
2. arises due to overlapping claims of tax jurisdictions
3. Tax treaties largely prevent/mitigate juridicial double taxation

 

Objectives of the agreement could be:

a. Promotion of mutual economic relations, trade and investment

b. Elimination of Double taxation

c. Certainty on nature of income and quantum of tax payable irrespective of tax laws of overseas state

d. Exchange of information to combat tax avoidance / tax evasion

e. Establishing the right of a country to tax any income stream