Double Taxation in India: Meaning, DTAA Benefits & Relief

Winning a foreign client is only half the battle; keeping the revenue is the other. Indian freelancers and businesses increasingly export services to the US, UK, and EU, and make substantial cross-border income.

​Unfortunately, taxes can often feel like a penalty on your success. As an exporter, seeing withholding tax deducted from your invoice or realising that the same income is taxable again in India can come as a shock. However, the unfortunate reality is that double taxation erodes 30-40% of your hard-earned revenue.

​We will discuss what double taxation is, how it works, and how you, as an Indian business, can deal with it.

Double taxation happens when the same income is taxed more than once by two different tax authorities. This usually happens when you earn income in one country but are also required to pay tax on that income in your country of residence.

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For Indian taxpayers, this situation commonly arises because India taxes residents on global income under the Income Tax Act, while the country where the income originates may also levy tax through withholding or source-based taxation.

There are predominantly two types of double taxation:

1. Economic double taxation

Economic double taxation happens when your income is taxed in two different countries. For example, your income from a foreign client may be taxed in the client's country of residence and then taxed again in India when you file your tax returns.

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2. Juridical double taxation

Juridical double taxation occurs when you are taxed on the same income in two different countries due to overlapping tax laws.

On the surface, economic and juridical double taxation seem similar. However, the nuanced difference between the two is in who is being taxed and why. Economic double taxation refers to the same income being taxed in multiple jurisdictions, while juridical double taxation is entirely about the same person being taxed twice on that income due to conflicting legal provisions.

There are a few reasons why you may face double taxation and lose revenue to it. These include:

1. Conflicting residency rules

Most countries apply residency rules to decide who is taxed. In India, residents of the country are taxed on global income. However, in a few other countries, income earned within their borders is taxed. In this case, you end up being taxed in the source country and then again in India.

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2. Source-based withholding tax

Many countries deduct something called the withholding tax before paying foreign vendors. For example, if you sell goods to a customer abroad, the client’s country may require you to deduct taxes at source before releasing payment. Though tax is deducted upfront, this income is still taxable again in India.  

3. Lack of DTAA awareness

The DTAA is a provision that allows individuals and businesses to avoid paying tax on the same income. However, if you are unaware of the applicable tax treaty or do not apply its benefits correctly, you may end up paying full tax in both countries.

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4. Incorrect income report

The final major source of double taxation is reporting your income incorrectly or not claiming relief when filing returns. In this case, when foreign-sourced income is not disclosed properly, or foreign tax credit is not claimed correctly, the same income may be taxed again in India without adjustment.

The principle of double taxation, where the same income or the same person is taxed twice, remains the same for everyone. However, the way this tax is triggered and the relief available differ based on whether you are a freelancer, a remote worker, or a registered business dealing with foreign clients.

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Here’s how double taxation may work for each group:

1. Freelancers and solopreneurs

If you are a freelancer exporting services, double taxation starts at the invoice stage. Many foreign clients deduct withholding tax before paying you, based on their local tax laws. As a result, you receive a reduced payment even though the full invoice value counts as your income.

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In India, this income is taxed under Profits and Gains of Business or Profession. Unless you claim relief, you pay tax again while filing your return and are taxed twice on the same earnings.

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2. Remote workers

If you are a remote worker in India employed by a foreign company, it is your salary that may be taxed overseas before it reaches you. The foreign employer may deduct income tax as per their domestic rules.

Since India taxes residents on global income, the same salary is taxable again in India under Income from Salaries.

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3. Registered Indian businesses

For Indian businesses such as SMEs or private limited companies, double taxation usually appears in cross-border contracts. Foreign clients may deduct withholding tax on payments classified as fees for technical services.

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In India, this income is taxed as business profits. If treaty benefits or foreign tax credit are not applied correctly, the tax deducted overseas does not get adjusted.

A Double Taxation Avoidance Agreement, or DTAA, is a bilateral tax treaty signed between two countries to prevent situations where the same income is taxed twice. This agreement defines which country has the right to tax which income. It specifies whether the source country where the income is earned, or the country where the taxpayer resides, gets to levy taxes.

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The purpose of DTAAs is to encourage international trade by removing the burden of high taxes. India has a strong DTAA position with agreements with over 90 countries, including the US, UK, UAE, Canada and Australia. As a goods and services exporter, you can make use of the provisions in these DTAAs to claim relief when filing returns.

DTAAs offer provisions to help you avoid paying tax twice on the same income. These methods are largely based on OECD and UN treaty models and determine how tax relief is provided by the residence country. Here are some methods:

1. Exemption method

Under the exemption method, income is taxed in only one country. The residence country does not levy tax on the foreign-sourced income.

In some cases, the exemption is absolute, and the foreign income is fully excluded from taxable income in India. In other cases, exemption with progression applies, where the foreign income is considered only to determine the applicable tax slab, while you are taxed only on your domestic income.

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2. Tax credit method

The tax credit method is the most commonly used DTAA relief mechanism. Under this method, India taxes your global income but allows you to claim credit for the tax already paid in the source country.

​The credit is usually limited to the amount of tax that would have been payable in India on that income. If the foreign tax rate is lower, you pay the balance tax in India. However, if your foreign tax rate is higher, the excess tax you paid abroad cannot be refunded in India.

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3. Tax sparing method

The tax sparing method applies in specific treaties, usually between developed and developing countries. Under this method, even if the source country offers a tax holiday or concessional tax rate, the residence country treats the income as if tax had been paid at the normal rate.

To avoid double taxation as an Indian freelancer or company, you would need to take care of two things:

1. First, you should take the right measures to prevent or reduce the effects of double taxation.

2. The next step would be recovery, which means to claim credit in India for tax you’ve already paid abroad.

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Here’s how the provisions for both steps would work under the Income Tax Act:

Relief provisions under the Income Tax Act

1. Section 90: Bilateral relief when DTAA exists

Section 90 applies when India has a DTAA with a foreign country, such as the US, UK, UAE, or Canada. Under this provision, you can either pay tax at a lower rate in the source country or claim a foreign tax credit in India for taxes already paid abroad.

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2. Section 90A: Specified Associations or Territories

Section 90A works similarly to Section 90 but applies to specific associations or territories notified by the Indian government. This provision is mainly relevant for structured business arrangements.

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3. Section 91: Unilateral Relief when no DTAA exists

When India does not have a DTAA with a country, Section 91 provides unilateral relief. In such cases, India voluntarily allows you to claim credit for tax paid abroad, provided you can prove that the income was taxed in the foreign country and that you are an Indian resident.

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Here’s how you can claim these benefits:

Step 1: Prevent tax deduction at source

The easiest way to avoid revenue loss is to reduce withholding tax before your client pays you. For this, you have to obtain a Tax Residency Certificate (TRC) by applying through Form 10FA on the Income Tax Portal. The certificate is issued in Form 10FB and serves as official proof that you are an Indian tax resident.

​If the TRC does not contain all required details, you must submit Form 10F as an electronic self-declaration. For US-based clients, you must also submit the relevant W-8 series forms. Freelancers and individuals use Form W-8BEN, while companies use Form W-8BEN-E.

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Step 2: Claim foreign tax credit in India

If foreign tax has already been deducted, you can recover it by applying for and claiming the Foreign Tax Credit (FTC) while filing your Indian tax return.​

The first and most critical step is filing Form 67 online. This form must be submitted before filing your Income Tax Return. It contains details of foreign income earned and tax paid abroad, along with supporting documents.​

While filing your return, you must also complete Schedule FSI, which captures country-wise foreign income, and Schedule TR, which calculates the tax relief claimed under Section 90 or Section 91.

You would need two sets of documents to claim relief, one set to prevent or lower your tax abroad and another to claim credit in India.

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Documents to prevent or lower tax abroad

You must provide these documents to your foreign client before payment is made:

1. Tax Residency Certificate (TRC) issued in Form 10FB, obtained through Form 10FA.
2. Form 10F, if additional details are required by the foreign country.
3. W-8BEN for individuals or W-8BEN-E for entities dealing with US clients.
4. Permanent Account Number (PAN) for identity and compliance purposes.

Documents to claim foreign tax credit in India

These documents are required while filing your Income Tax Return:

1. Form 67, which is mandatory and must be filed before the ITR.

2. Proof of foreign tax deducted or paid, such as Form 1042-S for US income or a certificate from the foreign tax authority.

3. Foreign salary slips or tax statements, for remote employees,

4. Bank advice or challans, if tax was paid directly to a foreign government.

5. Foreign Inward Remittance Advice (FIRA) to establish legal receipt of funds and GST export compliance.

6. Copy of the foreign tax return, if filed, as supporting evidence.

Apart from the documents we’ve mentioned above, you also need to fill out the following mandatory schedules in your ITR form:

• Schedule FSI for reporting foreign-sourced income.
• Schedule TR for claiming tax relief under Section 90, 90A, or 91.
• Schedule FA for disclosing foreign assets.

One of the most common mistakes you can make is assuming that the tax deducted by a foreign client is final and cannot be recovered. Many freelancers and businesses accept withholding tax as a cost of doing business and do not explore DTAA benefits or foreign tax credit. Missing steps like submitting a TRC, Form 10F, or the correct W-8 form can also result in higher tax being deducted at the source.

Another frequent issue is incorrect or incomplete reporting while filing returns in India. Foreign income may be reported under the wrong tax head, Form 67 may be missed or filed late, or Schedule FSI and Schedule TR may not be filled correctly. In some cases, foreign income is not disclosed at all, which can trigger tax notices and penalties later. These errors usually stem from treating foreign income like domestic income, when in reality it requires additional reporting and documentation to avoid being taxed twice.

Double taxation is both a flow in the system and the direct result of how international tax rules intersect. Ignoring it and not taking the right measures can quickly and quietly drain a large part of your revenue.

That said, taxes are only one part of the equation. Even when your tax structure is right, using the wrong platform to receive international payments can still eat into your margins through high fees, poor FX rates, and compliance friction. This is where XFlow fits in. XFlow is built for Indian businesses and freelancers exporting services, with transparent pricing, competitive exchange rates, automated compliance support, and seamless settlement into Indian bank accounts, all while staying aligned with RBI and FEMA requirements.

If you want to protect your revenue end-to-end, from taxation to payments, it starts with choosing the right systems. Explore how XFlow can simplify cross-border collections and help you keep more of what you earn from global clients.