How does Double Taxation Avoidance Agreement work (DTAA) in the context of Capital Gains Tax paid in India on the foreign tax treatment?
In case a non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
Dear Smartowner team,
You are 100% correct.
At the same time, there are some nuances. For example USA, the tax credit is not straight forward. That is whatever paid in India, is not 100% credited here as paid. It depends lot of other factors. Say for example, some one is having their stocks sold in the same year. One of the stock, say is a stock that trades in USA stock exchange but it is ADR from say some foreign country – say France. Now this has no relationship in the capital gain through real estate that person has paid tax credit. And he would think he will get the credit back. But, the tax forms do some calculations and finds a ratio based on his overall picture of “foreign” assets compared to his total assets and that ratio is factored in calculating the tax credit. So, it is not 100% credited for what is debited as tax in India
One has to learn hard way. Devil is in the details