DTAs work by allocating taxing rights between the countries involved. They determine which country has the right to tax specific types of income, such as dividends, interest, royalties, and business profits. The main methods used to avoid double taxation are:
Exemption Method: Income that has been taxed in one country is exempted from tax in the other. Credit Method: The tax paid in the source country is allowed as a credit against the tax payable in the resident country.