DTAA applicability on income of NRI, resident in 3rd country

[Roger Pinto]

Can a NRI (who is neither a resident of US nor India) claim DTAA benefits on royalty income earned from an entity in US. This NRI pays taxes on his Indian income and hence has a 'Foreign tax identifying number (PAN number)'.

Note that on filing of successful W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)' form, the withholding tax rate gets reduced to 15% (from 30%) on the royalty income earned from US entity.

Further what is the position, if this NRI is resident of a 3rd country (say UAE) which does not have a DTAA treaty with US. This could be because UAE does not have income taxes.

What happens to the witheld tax by US, at whichever rate applicable (15% or 30%). Is the NRI required to file returns in US.

Also (if eligible for DTAA) as this income would qualify for 'Exemption method', would disclosing it under 'Exempt Income' suffice for that NRI's Indian tax returns compliance.

AI Summary

NRI Seeks Clarity on Double Taxation Avoidance Agreement for U.S. Royalty Income and Tax Filing Obligations An individual queries about the applicability of the Double Taxation Avoidance Agreement (DTAA) on royalty income earned by a Non-Resident Indian (NRI) from a U.S. entity. The NRI, who is not a resident of the U.S. or India, holds a PAN and pays taxes on Indian income. Filing a W-8BEN form reduces the U.S. withholding tax rate from 30% to 15%. The query also explores the implications if the NRI resides in a third country, like the UAE, which lacks a DTAA with the U.S., and whether the NRI must file U.S. tax returns. Additionally, it questions if declaring the income as 'Exempt Income' suffices for Indian tax compliance.