Tax On Pensions For Government Services And Others

What is the purpose of having an Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with UAE by India (DTAA) between UAE and India?

In the Present Era of cross border transactions across the globe, the effect of Taxation is one of the important considerations for any Trade and Investment decisions in another countries.
Where a taxpayer is resident in one country and but has source of income situated in another country, it gives rise to possible double taxation.
DTAA lays down rules for taxation of the income by the Source country and the residence country.

This treaty was entered into by UAE and India with an aim to promote their economic relations and prevent tax evasion.

Scope

This DTAA agreement shall apply to persons who are residents of one or both of the Contracting States (UAE or India).

Taxes Covered

This agreement applies on the following existing taxes:

Income Tax, Corporation Tax and Wealth Tax in UAE
Income Tax and Wealth Tax in India

Following is the summary of the DTAA between UAE and India with respect to pensions in respect of Government service others:

Area of Income

Income earned in

Income taxed in

Remarks

Remuneration and Pension in respect of Govt Service

In the state where the services are rendered

-In the same state where the services are rendered

Exception:

Taxable in the other state if the services are rendered there and is a resident of that state who

-is a national of that state

-did not become a resident solely for the purpose of rendering the services

Non-Govt pension and Annuities- Any pension other than above

In the state by a resident from sources with in other state

In the same state where he is resident

Article 18 – Remuneration and pensions in respect of Government service

Remuneration paid, or any pension paid or out of funds created, by a contracting state or a political sub division or a local authority to an individual in respect of services rendered to them shall be taxable only in that state.
However such remuneration and pension shall be taxable only in other state if the individual is a resident of that state who is a national of that state or in the case of remuneration if the individual is a resident who did not become a resident of that state solely for the purpose of rendering the services.

Article 19 – Non – Government pension and Annuities

Any pension other than that referred to in Article 18 or an annuity derived by a resident of a contracting state from the sources in other state may be taxed only in the first mentioned contracting state.

Elimination of Double Taxation

Where a resident of India derives income or owns capital which, in accordance with the provisions of the agreement, may be taxed in UAE, India shall allow as a deduction from the tax on the income/capital of that resident an amount equal to Income tax or capital tax paid in UAE whether directly or by deduction.
Where a resident of UAE which in accordance with the agreement may be taxed in India, UAE shall allow as a deduction from the tax on income of that person an amount equal to income tax paid in India.
However such deduction shall not exceed that part of Income tax or capital tax as computed before the deduction is given.

Exchange of Information between the tax authorities of UAE and India

The competent authorities of contracting state shall exchange such information as is necessary for carrying out the provisions of the agreement or for the prevention or detection of evasion of taxes.

Limitation of Benefits

An entity which is a resident of a contracting state shall not be entitled to the benefits of this agreement if the main purpose of creation of such entity was to obtain the benefits of this agreement.

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