DTAA Relief for NRIs: Credit vs Exemption Method

Countries tax income on two overlapping bases: residence (the country you live in taxes your worldwide income) and source (the country where the income arises taxes it too). Without a treaty, an India-resident with a UK dividend, or a US-resident with an India rent, gets taxed twice on the same money. A DTAA allocates taxing rights between the two countries for each type of income — salary, interest, dividends, royalties, capital gains, business profits, immovable property — and specifies how relief is given. India has DTAAs with around 90+ countries, most of them structured on the OECD or UN model.

Every DTAA uses one of two relief mechanisms — sometimes different mechanisms for different income types within the same treaty.

Section 90 (and 90A for specified territories) is the bilateral hook: where India has a DTAA with the other country, the taxpayer can claim relief per the treaty, or per the Income-tax Act — whichever is more beneficial. Section 91 is the unilateral hook: where there is NO DTAA between India and the source country, an India-resident can still claim a credit for foreign tax paid, at the lower of the Indian rate or the foreign rate on that doubly-taxed income. Section 91 is a one-way street — it only helps India-residents; NRIs claiming relief in their country of residence use that country's foreign-tax-credit rules, not Section 91.

Three documents anchor every DTAA claim. One, a Tax Residency Certificate (TRC) from the country of residence for the relevant year — mandatory under Section 90(4). Two, Form 10F, self-declared online on the Indian income-tax portal, which supplies the extra particulars the TRC often omits (nationality, tax ID, address, period covered); NRIs without a PAN can now file Form 10F using a workaround login. Three, for an India-resident claiming a foreign tax credit under Rule 128, Form 67 must be filed on or before the due date for filing the return of income under Section 139(1), with proof of foreign tax paid (challan / withholding certificate). The credit is given proportionately, income stream by income stream, and is capped at the Indian tax on that slice.

The UAE levies no personal income tax on individuals, so for a UAE-resident NRI there is usually no 'double tax' on UAE salary or UAE bank interest to relieve. The India-UAE DTAA's real value sits elsewhere: it allocates taxing rights on India-source income (India interest, India capital gains, India dividends) and — critically — the TRC that supports treaty-rate withholding on those Indian receipts. It also matters when the direction reverses. Under the ordinary credit method, a nil source-country tax means no credit is available in the residence country, so an India-resident (ROR) drawing UAE-source consultancy income still pays full Indian tax on it — the UAE's zero rate does not carry over. This is why residential-status planning (see the Section 6 guide) sits alongside DTAA planning: the DTAA cannot rescue you from a status you should not have taken.

Illustrative round numbers — confirm the specific treaty article and current withholding rate before relying on the figures. Take ₹1,00,000 of India-source interest paid to a US-resident NRI. India taxes it under the treaty at the capped rate (say 15%) = ₹15,000 withheld. The US, as the country of residence, taxes the same interest at its own domestic rate (say 24%) = ₹24,000, then gives a foreign tax credit of ₹15,000 for the Indian tax, leaving ₹9,000 of US tax to pay. Total tax = ₹24,000 — the higher of the two rates, which is the whole point of ordinary credit. Reverse the direction: an India-resident (ROR) with $10,000 of US dividends taxed 25% by the US files an Indian return on worldwide income, claims an FTC via Form 67 for the US tax, capped at the Indian tax on that $10,000 slice — if Indian tax is lower, the excess US credit is lost.

Six that show up repeatedly. One, no TRC or an out-of-date TRC — Section 90(4) makes it non-negotiable. Two, filing Form 67 after the ITR due date; earlier case law was mixed but the safer view is to file it on or before the Section 139(1) due date. Three, assuming the exemption method applies when the treaty article uses credit — most Indian treaties use ordinary credit. Four, forgetting that the FTC cap is calculated after Indian surcharge and cess on that income slice, not the headline rate. Five, mixing income streams in one Form 67 line rather than computing the cap per source of income per country. Six, an NRI applying Section 91 — Section 91 is for India-residents only; NRIs get treaty relief in their country of residence.

Cross-border tax relief only works if the paperwork sits inside the deadline. NRI Blueprint runs the DTAA workflow end-to-end — refreshing the TRC, filing Form 10F, computing the FTC per Rule 128, and filing Form 67 with the return — for NRIs, returning residents and NRI-owned businesses. For treaty planning on cross-border business income (royalties, service fees, PE risk), see the guide on cross-border tax for NRI businesses linked below.

Last reviewed: July 2026. Current for FY 2025-26 (AY 2026-27). Specific DTAA rates and articles vary by country and are periodically renegotiated — always confirm the current article of the applicable treaty. This is general information, not individual tax advice.