The Double Tax Avoidance Agreement (DTAA) is a bilateral treaty between two countries designed to prevent the problem of double taxation and encourage cross-border trade and investment.

Double taxation occurs when the same income is taxed by more than one country, which can place an unnecessary financial burden on taxpayers and limit international trade, services, and the movement of people and capital. While some countries have domestic laws that offer unilateral relief from double taxation, these measures are often inadequate due to differences in rules for determining the source of income and tax residency. This is where tax treaties like the DTAA come in—they help harmonize tax rules and reduce barriers to global economic activity.

The need for a DTAA arises from the differences in how countries tax income. Countries may tax income either on a receipt or accrual basis, and they have varying rules for determining tax residency. Without a clear and consistent definition of taxable income, the same salary or income could be taxed in multiple countries. This overlap in tax laws can result in an individual being taxed multiple times for the same income, asset, or transaction.

To address this issue, DTAAs typically offer one of the following solutions:

        I) Tax is levied in only one country,

       II) Income is exempt from tax in both countries, or

      III) Tax paid in one country can be credited against the tax payable in the other country.

These provisions help reduce the burden of double taxation, making international business and investment more efficient and fair for taxpayers.