Double Taxation

Definition:
Double taxation is the imposition of two or more taxes on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country. The double liability is often mitigated by tax treaties between countries.

International double taxation agreements

It is not unusual for a business or individual who is resident in one country to make a taxable gain (earnings, profits) in another. This person may find that he is obliged by domestic laws to pay tax on that gain locally and pay again in the country in which the gain was made. Since this is inequitable, many nations make bilateral double taxation agreements with each other. In some cases, this requires that tax be paid in the country of residence and be exempt in the country in which it arises. In the remaining cases, the country where the gain arises deducts taxation at source ("withholding tax") and the taxpayer receives a compensating foreign tax credit in the country of residence to reflect the fact that tax has already been paid. To do this, the taxpayer must declare himself (in the foreign country) to be nonresident there. So the second aspect of the agreement is that the two taxation authorities exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion.

Double taxation avoidance agreement signed by India

India has comprehensive Double Taxation Avoidance Agreements (DTAA ) with 79 countries. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kinds of taxpayers. A large number of foreign institutional investors who trade on the Indian stock markets operate from Mauritius. According to the tax treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a company resident in Mauritius selling shares of

an Indian company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax altogether. The Indian and Cypriot tax treaty is the only other such Indian treaty to provide for the same beneficial treatment of capital gains. It must be noted that India has and is making attempts to revise both the Mauritius and Cyprus tax treaties to eliminate this favorable treatment of capital gains tax. The Indian government periodically checks for its DTAA with many countries and come up with amendments.

Sections for DTAA in Indian Income Tax Act

SECTION 90
DOUBLE TAXATION RELIEF - WHERE AGREEMENT EXISTS [SEC. 90] General - In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India may be taxed in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961, and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement - Notification No. S.O. 2123(E), dated 28-8-2008. Agreement should prevail over statutory provision - Where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective, of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act, that will govern the taxation of incomeCircular : No. 333 [F.No. 506/42/81-FTD], dated 2-4-1982. Agreement with Canada - A notification has been issued on 24-6-1992, notifying that the rate of tax of 25 per cent will be applicable to royalties and fees for technical services paid by a resident of India to a resident of Canada. This reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed after 1212-1988. The Canadian Government have also passed Remission Order, dated 3-12-1991 making the revised rate as above applicable to Indian residents as well in respect of royalties or fees for technical services paid by a Canadian residentCircular : No. 638, dated 28-10-1992. Agreement with Germany - Under Article XVIII of the Agreement between the Government of India and the Government of the Federal Republic of Germany for Avoidance of Double Taxation on Income (as notified vide Notification No. 87(25/33/57-II), dated 13-9-1960 and subsequently amended by a protocol notified vide Notification No. 6387 (F.No. 501/2/80-FTD) and exchange of notes dated 28th June, 1984), mutual agreement has been reached for

application of this agreement with effect from 1st January, 1991 in the territory of five new States as well as part of the Land Berlin where basic Law was not valid before the coming into force of the German merger. The existing Agreement between the Government of India and the Government of the German Democratic Republic for the avoidance of double taxation with respect to taxes on income and on capital [as notified vide GSR 107(E), dated 2nd March, 1990] will be applied only until 31st December, 1990.Circular : No. 659, dated 8-9-1993. Agreement with Mauritius - Any resident of Mauritius deriving income from alienation of shares of Indian companies will be liable to capital gains tax only in Mauritius as per Mauritius tax law and will not have to pay any capital gains tax in IndiaCircular: No. 682, dated 30-31994. The provisions of the Indo-Mauritius DTAC of 1983 apply to residents of both India and Mauritius. Article 4 of the DTAC defines a resident of one State to mean any person who, under the laws of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Foreign Institutional Investors and other investment funds, etc., which are operating from Mauritius are invariably incorporated in that country. These entities are liable to tax under the Mauritius Tax law and are, therefore, to be considered as residents of Mauritius in accordance with the DTAC. Prior to 1-6-1997, dividends distributed by domestic companies were taxable in the hands of the shareholder and tax was deductible at source under the Income-tax Act, 1961. Under the DTAC, tax was deductible at source on the gross dividend paid out at the rate of 5% or 15% depending upon the extent of shareholding of the Mauritius resident. Under the Income-tax Act, 1961, tax was deductible at source at the rates specified under section 115A, etc. Doubts have been raised regarding the taxation of dividends in the hands of investors from Mauritius. It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly. The test of residence mentioned above would also apply in respect of income from capital gains on sale of shares. Accordingly, FIIs, etc., which are resident in Mauritius would not be taxable in India on income from capital gains arising in India on sale of shares as per paragraph 4 of article 13Circular : No. 789, dated 13-4-2000*. CLARIFICATION ONE The CBDT has further clarified that where an assessee is a resident of both the Contracting States, in accordance with para 1 of Article 4 of Indo-Mauritius DTAC, then, his residence is to be determined in accordance with para 3 of the said article, which reads as under : 3. Where, by reason of the provisions of paragraph 1, a person other than an individual is resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which the place of effective management is situated. In view of the above, where an Assessing Officer finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed to determine the

residential status under para 3 of Article 4 of DTAC. Where it is found as a fact that the company has its place of effective management in India, then notwithstanding its being incorporated in Mauritius, it would be taxed under the DTAC in India. - Circular : No. 1/2003, dated 10-2-2003. Specified territory under Explanation 2 to section 90 NOTIFICATION ONE In exercise of the powers conferred by Explanation 2 to section 90 of the Income-tax Act, 1961 (43 of 1961) the Central Government hereby notifies the following areas outside India as the specified territory for the purposes of the said section, namely: (i) Bermuda a British Overseas Territory (ii) British Islands (iv) Gibraltar (v) Guernsey (vi) Isle of Man (vii) Jersey (viii) Netherlands Antilles (ix) Macau Virgin a British Overseas Territory a British Overseas Territory a British Overseas Territory a British Crown Dependency a British Crown Dependency a British Crown Dependency an Autonomous Part of the Kingdom of Netherlands a Special Administrative Region of The Peoples Republic of China

(iii) Cayman Islands

2. This notification shall come into force with immediate effect. - Notification No. 22/2010 [F. No. 142/5/2010-SO(TPL)], dated 7-4-2010. NOTIFICATION TWO In exercise of the powers conferred by Explanation 2 to section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies Hong Kong Special Administrative Region of the Peoples Republic of China as specified territory for the purposes of the said section. - Notification No. S.O. 909(E), dated 20-4-2010. Agreement with UK - Suspension of collection of taxes during Mutual Agreement Procedure See Instruction : No. 3/2004, dated 19-3-2004. Agreement with USA - Suspension of Collection of taxes during Mutual Agreement Procedure Instruction No. 10/2007, dated 23-10-2007. Agreement with Denmark - Suspension of collection of taxes during Mutual Agreement Procedure - Instruction No. 7/2008, dated 24-6-2008. Tax Information Exchange Agreement

Bermuda - Notification No. 5/2011 (F. No. 503/2/2009-FTD-I), dated 24-1-2011 Isle of man British Virgin Island Bahmas.

Adoption by Central Government of agreement between specified associations for double taxation relief.

Section 90A.
(1) Any specified association in India may enter into an agreement with any specified association in the specified territory outside India and the Central Government may, by notification in the Official Gazette, make such provisions as may be necessary for adopting and implementing such agreement (a) for the granting of relief in respect of (i) income on which have been paid both income-tax under this Act and income-tax in any specified territory outside India; or (ii) income-tax chargeable under this Act and under the corresponding law in force in that specified territory outside India to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that specified territory outside India, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that specified territory outside India, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that specified territory outside India. (2) Where a specified association in India has entered into an agreement with a specified association of any specified territory outside India under sub-section (1) and such agreement has been notified under that sub-section, for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette76 in this behalf. Explanation 1.For the removal of doubts, it is hereby declared that the charge of tax in respect of a company incorporated in the specified territory outside India at a rate higher than the rate at

which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such company. Explanation 2.For the purposes of this section, the expressions (a) specified association means any institution, association or body, whether incorporated or not, functioning under any law for the time being in force in India or the laws of the specified territory outside India and which may be notified76 as such by the Central Government for the purposes of this section; (b) specified territory means any area outside India which may be notified76 as such by the Central Government for the purposes of this section.]

Countries with which no agreement exists.

Section 91.
(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income78 at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. (2) If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him (a) of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or (b) of a sum calculated on that income at the Indian rate of tax; whichever is less. (3) If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India in any previous year and such share includes any income accruing or arising outside India during that previous year (and which is not deemed to accrue or arise in India) in a country with which there is no agreement under section 90 for the relief or avoidance of double taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so

included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. Explanation.In this section, (i) the expression Indian income-tax means income-tax 79[***] charged in accordance with the provisions of this Act; (ii) the expression Indian rate of tax means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this 80[Chapter], by the total income; (iii) the expression rate of tax of the said country means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country; (iv) the expression income-tax in relation to any country includes any excess profits tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.

Double Taxation Relief: India has entered into DTAA with 65 countries including countries like U.S.A., U.K., Japan, France, Germany, etc. These agreements provides for relief from the double taxation in respect of incomes by providing exemption and also by providing credits for taxes paid in one of the countries. These treaties are based on the general principles laid down in the model draft of the Organisation for Economic Cooperation and Development (OECD) with suitable modifications as agreed to by the other contracting countries. In case of countries with which India has double taxation avoidance agreements, the tax rates are determined by such agreements and are indicated for various countries as under:

Country

Dividends %

Interest % 15 20 10

Royalties % 15 30 10

Australia Austria Bangladesh

15 20 15

Belarus Belgium Brazil Bulgaria Canada China Cyprus Czechoslovakia Czech Republic Denmark Egypt Finland France Germany Greece Hungary Indonesia Israel Italy Japan Jordan Kazakhstan Kenya

15 15 15 15 25 10 15 20 10 20 20 15 10 10 20 15 15 10 20 15 10 10 15

10 15 15 15 15 10 10 15 10 15 20 10 15 10 20 15 10 10 15 15 10 10 15

15 20 15 20 15 10 15 30 10 20 30 20 10/20 10 30 30 15 10 20 20 20 10 20

Korea Kyrgyzstan Libya Malaysia Malta Mauritius Mongolia Morocco Namibia Nepal Netherlands New Zealand Norway Oman Philippines Poland Portugal Qatar Romania Russian Federation Singapore South Africa Spain

20 10 20 20 15 15 15 10 10 15 10 15 15 12.5 20 15 15 10 20 10 15 10 15

15 10 20 20 10 20 15 10 10 15 10 10 15 10 15 15 10 10 15 10 15 10 15

15 15 30 30 15 15 15 10 10 15 10 10 30 15 15 22.5 10 10 22.5 10 15 10 20

Sri Lanka Sweden Switzerland Syria Tanzania Thailand Trinidad and Tobago Turkey Turkmenistan United Arab Emirates United Kingdom United States Uzbekistan Vietnam Zambia Non treaty countries

15 10 15 0 15 20 10 15 10 15 15 20 15 10 15 0

10 10 15 7.5 12.5 20 10 15 10 12.5 15 15 15 10 10 20

10 10 20 10 20 15 10 15 10 10 15 15 15 10 10 20

Double Taxation in India India has entered into Double Taxation Avoidance Agreements (DTAA) with 65 countries including countries like U.S.A., U.K., Japan, France, Germany, etc. These agreements provide for relief from double taxation in respect of incomes by providing exemption and also by providing credits for taxes paid in one of the countries. These treaties are based on the general principles laid down in the model draft of the Organisation for Economic Cooperation and Development (OECD) with suitable modifications as agreed to by the other contracting

countries. A typical DTA agreement between India and another country covers only residents of India and the other contracting country which has entered into the agreement with India. A person who is not a resident either of India or of the other contracting country cannot claim any benefit under the said DTA agreement. Such agreement generally provides that the laws of the two contracting states will govern the taxation of income in respective states except when express provision to the contrary is made in the agreement. A situation may arise when originally the tax provision in the other contracting state gave concessional treatment compared to India at a particular time but Indian laws were subsequently amended to bring incidence of tax to a level lower than the tax rate existing in the other contracting state.Since the tax treaties are meant to be beneficial and not intended to put taxpayers of a contracting state to a disadvantage, it is provided in Sec.90 that a beneficial provisions under the Indian Income Tax Act will not be denied to residents of contracting state merely because the corresponding provision in tax treaty is less beneficial. Some Double taxation avoidance agreements provide that income by way of interest, royalty or fee for technical services is charged to tax on net basis. This may result in tax deducted at source from sums paid to non- residents which may be more than the final tax liability. Taxation of Business Profits under DTA agreements One of the important terms that occurs in all the Double Taxation Avoidance Agreements is the term 'Permanent Establishment' (PE) which has not been defined in the Income Tax Act. However as per the Double Taxation Avoidance Agreements, PE includes, a wide variety of arrangements i.e. a place of management, a branch, an office, a factory, a workshop or a warehouse, a mine, a quarry, an oilfield etc. Imposition of tax on a foreign enterprise is done only if it has a PE in the contracting state. Tax is computed by treating the PE as a distinct and independent enterprise. In order to avoid double taxation it is provided that if a resident of India becomes liable to pay tax either directly or by deduction in the other country in respect of income from any source, he shall be allowed credit against the Indian tax payable in respect of such income in an amount not exceeding the tax borne by him in the other country on that portion of the income which is taxed in the said other country. The same benefit is available to the resident of the other Country, on income taxed in India. In respect of incomes on which taxes are either exempted or reduced, the country of residence will not take the exempted income into account while determining the tax to be imposed on the rest of the income. Taxation of Income from Air and Shipping Transport under DTA agreements Income derived from the operation of Air transport in international traffic by an enterprise of one contracting state will not be taxed in the other contracting state. In respect of an enterprise of one contracting state, income earned in the other contracting state from the operation of ships in international traffic, will be taxed in that contracting state wherein the place of effective management of enterprise is situated. However some DTA agreement contain provisions to tax

the income in the other contracting state also, although at reduced rate. These provisions do not apply to coastal traffic. Taxation of Income from Associated Enterprises under DTA agreements In order to plug loop holes for tax evasion, a separate article in DTA agreement provides for taxing the notional income deemed to arise on account of an enterprise of one contracting state participating directly / indirectly in the management of another enterprise in the other contracting state or where some persons participate directly or indirectly in both the enterprises under conditions different from those existing between the independent enterprises. Taxation of Dividend Income under DTA agreements Dividend paid by a Company which is a resident of a Contracting State to a resident of the other Contracting State will be taxed in both the States. Taxation of Interest Income under DTA agreement Interest paid in a Contracting State to a resident of the other Contracting State is chargeable in both the States. Taxation of Income from Royalties under DTA agreements Regarding Royalties arising in a Contracting State and paid to a resident of the other Contracting State 1. Some DTA agreements provide for taxation in the other Contracting State. 2. Some agreements provide for taxation in the contracting State. 3. Some agreements provide for taxation in both the States. Taxation of Income from Capital Gains under DTA agreements Capital Gains will be taxed in the state where the capital asset is situated at the time of sale. Taxation of Income from Professional Services under DTA Agreements Income will be taxed in the state where the person is a resident. However if he has a fixed base in the other Contracting State, the income attributable to the fixed base will be taxed in the other contracting state. Double Taxation Relief where no DTA Agreements are entered into Apart from relief to persons of a country where India has entered into Double Taxation Avoidance Agreement, there is relief given even in cases where the Government of India has not entered into DTA agreement with any foreign country. In such cases if any resident Indian produces evidences to show that he has paid any tax in any country with which the Government

of India has not entered into a DTA agreement, tax relief on that part of his income which suffered taxation in the foreign country, to the extent of tax so paid in such foreign country, or the tax leviable in India under the Income Tax Act on such income whichever is less, shall be allowed as deduction u/s 91 while calculating his tax liabilities on such income. Double Taxation Avoidance Agreements In case of countries with which India has double taxation avoidance agreements, the tax rates are determined by such agreements and are indicated for various countries as under Name of the Country Austria Dividend Interest Royalty Technical Fee Exempt, except on amounts (net) attributable to activities performed in the state No separate provision No separate provision 30 20 30 20 20 30 Exempt, except on amounts (net) attributable to activities performed in the state 30 No separate provision 20 No separate

Not Not Not Mentioned Mentioned Mentioned

Australia Bangladesh Brazil Belgium Canada Czechoslovakia Denmark Federal German Republic Finland France

15 10,15 15 15 15,15 25,25 15,25 15 15,25

15 10 15 15 15 15 10,15 10,15 15

10/1/20 10 15/25 30 20 30 20 Not Mentioned 30

Not Not Not Mentioned Mentioned Mentioned

Great Britain Greece Hungary Indonesia

15

10,15

30

Not Not Not Mentioned Mentioned Mentioned 15 10,15 15 10 40 15

provision Italy Japan Kenya Korea (South) Libya Malaysia Mauritius Nepal Netherlands New Zealand Poland Norway Romania Singapore Sri Lanka Syria Sweden Tanzania Thailand United Arab Republic USA UAE Zambia Not Mentioned 15 15 15,20 15 10,15 15 10,15 Not Mentioned 20 20 15 Not Mentioned 20 17.5 15 No separate provision No separate provision No separate provision No separate provision 20 30 22.5 20 22.5 No separate provision No separate provision No separate provision 20 20 No separate provision No separate provision 20,15 22.5 10

Not Not Not Mentioned Mentioned Mentioned Not Not Not Mentioned Mentioned Mentioned 5,15 10,15 15 20 15 15,25 15,20 Nil, Not Mentioned 10,15 10,15 15 15 15 15 15 15 20 30 22.5 20 22.5

Not Not Not Mentioned Mentioned Mentioned 15 Not Mentioned 15,25 10,15 15,20 10 7.5 15,10 12.5 10,25 10 10 20 20 15

Not Not Not Mentioned Mentioned Mentioned 15,25 15 5,15 10,15 15 10 20,15 22.5 10

These agreements follow a near uniform pattern in as much as India has guided itself by the UN model of double taxation avoidance agreements. The agreements allocate jurisdiction between the source and residence country. Wherever such jurisdiction is given to both the countries, the agreements prescribe maximum rate of taxation in the source country which is generally lower than the rate of tax under the domestic laws of that country. The double taxation in such cases are avoided by the residence country agreeing to give credit for tax paid in the source country thereby reducing tax payable in the residence country by the amount of tax paid in the source country. These agreements give the right of taxation in respect of the income of the nature of interest, dividend, royalty and fees for technical services to the country of residence. However the source country is also given the right but such taxation in the source country has to be limited to the rates prescribed in the agreement.The rate of taxation is on gross receipts without deduction of expenses. Withholding Tax for NRIs and Foreign Companies Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates are: 1. 2. 3. 4. 5. Interest - 20% of Gross Amount Dividends - 10% Royalties - 20% Technical Services - 20% Any other Services - Individuals - 30% of net income

Companies/Corporates - 40% of net income The above rates are general and in respect of the countries with which India does not have a Double Taxation Avoidance Agreement (DTAA).

Recent NEWS
India concludes Double Taxation protocol with Singapore

New Delhi, June 25, 2011(ANI): India has signed a protocol amending Double Taxation Avoidance Agreement (DTAA) with Singapore for effective exchange of information in tax matters. The protocol was signed by Central Board of Direct Taxes (CBDT) Chairman Prakash Chandra, on behalf of the Indian Government, and High Commissioner of Singapore to India Karen Anne Tan Ping Ming, on behalf of the Singapore Government, on Friday.

The negotiations for entering into an amending protocol were completed in one round at Singapore. "Both India and Singapore have adopted internationally agreed standard for exchange of information in tax matters. This standard includes the principles incorporated in the new paragraphs 4 and 5 of OECD Model Article on 'Exchange of Information' and requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes," a Union Finance Ministry statement said. "In the aftermath of the global financial crisis, there is increased recognition on part of governments that improvements in exchange of information in tax matters are a part of a broader agenda to improve transparency and global governance." "There is recognition that effective and comprehensive exchange of information in tax matters is a vital part of the ongoing efforts of revenue authorities to tackle international tax avoidance and evasion. Towards that end, India and Singapore joined hands for effective exchange of information including banking information," it added. (ANI)

Countries with which no agreement exists

(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. (2) If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him

of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or of a sum calculated on that income at the Indian rate of tax; whichever is less.

(3) If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India in any previous year and such share includes any income accruing or arising outside India during that previous year (and which is not deemed to accrue or arise in India) in a country with which there is no agreement under section 90 for the relief or avoidance of double

taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. Explanation.-In this section,

the expression "Indian income-tax" means income-tax charged in accordance with the provisions of this Act; the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this Chapter , by the total income; the expression "rate of tax of the said country" means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country; the expression "income-tax" in relation to any country includes any excess profits tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.

More Facts (Next Topic) The Central Government, acting under Section 90 of the Income Tax Act, has been authorised to enter into Double Tax Avoidance Agreements (tax treaties) with other countries. The object of such agreements is to evolve an equitable basis for the allocation of the right to tax different types of income between the 'source' and 'residence' states ensuring in that process tax neutrality in transactions between residents and non-residents. A non-resident, under the scheme of income taxation, becomes liable to tax in India in respect of income arising here by virtue of its being the country of source and then again, in his own country in respect of the same income by virtue of the inclusion of such income in the 'total world income' which is the tax base in the country of residence. Tax incidence, therefore, becomes an important factor influencing the non-residents in deciding about the location of their investment, services, technology etc. Tax treaties serve the purpose of providing protection to tax payers against double taxation and thus preventing the discouragement which taxation may provide in the free flow of international trade, international investment and international transfer of technology. These treaties also aim at preventing discrimination between the tax payers in the international field and providing a reasonable element of legal and fiscal certainty within a legal framework. In addition, such treaties contain provisions for mutual exchange of information and for reducing litigation by providing for mutual assistance procedure. Treaties signed with countries for avoidation of double taxation

S.No. Name of the Country Effective from Assessment Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Australia Austria Bangladesh Belgium Brazil Belarus Bulgaria Canada China Cyprus Czechoslovakia Denmark Finland France F.R.G F.R.G. D.G.R. F.R.G. 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Greece Hungary Indonesia Israel Italy Japan Jordan Kazakistan Kenya Libya Malta Malaysia Muritius Mongolia 1993-94 1963-64 1993-94 1989-90; 1999-2000 (Revised) 1994-95 1999-2000 1997-98 1987-88; 1999-2000 (Revised) 1996-97 1994-95 1986-87; 2001-2002 (Revised) 1991-92 1985-86; 2000-2001 Amending protocol 1996-97 1958-59 1984-85 1985-86 1998-99 1964-65 1989-90 1989-90 1995-96 1997-98 1991-92 2001-2002 1999-2000 1985-86 1983-84 1997-98 1973-74 1983-84 1995-96 (Revised) (Revised) (Revised) (Revised) (Original) (Protocol)

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Namibia Nepal Netherlands New Zealand Norway Oman Philippines Poland Qatar Romania Singapore South Africa South Korea Spain Sri Lanka Sweden Switzerland Syria Tanzania Thailand Trinidad & Tobago Turkmenistan Turkey U.A.E. U.A.R. U.K. U.S.A. Russian Federation Uzbekistan Vietnam Zambia

2000-2001 1990-91 1990-91 1988-89 1988-89 1999-2000 1996-97 1991-92 2001-2002 1989-90 1995-96 1999-2000 1985-86 1997-98 1981-82 1990-91; 1999-2000 (Revised) 1996-97 1983-84 1983-84 1988-89 2001-2002 1999-2000 1995-96 1995-96 1970-71 1995-96 1992-93 2000-2001 1994-95 1997-98 1979-80 (Revised)

(1999-2000 amending notification) (2001-2002 Supp. Protocal)

These Agreements follow a near uniform pattern in as much as India has guided itself by the UN model of double tax avoidance agreements. The agreements allocate jurisdiction between the source and residence country. Wherever such jurisdiction is given to both the countries, the agreements prescribe maximum rate of taxation in the source country which is generally lower than the rate of tax under the domestic laws of that country. The double taxation in such cases are avoided by the residence country agreeing to give credit for tax paid in the source country thereby reducing tax payable in the residence country by the amount of tax paid in the source country. These agreements give the right of taxation in respect of the income of the nature of interest, dividend, royalty and fees for technical services to the country of residence. However, the source country is also given the right but such taxation in the source country has to be limited to the rates prescribed in the agreement. The rate of taxation is on gross receipts without deduction of expenses. Mode of taxation in different types of income Capital Gains: So far as income from capital gains is concerned, gains arising from transfer of immovable properties are taxed in the country where such properties are situated. Gains arising from the transfer of movable properties forming part of the business property of a 'permanent establishment 'or the 'fixed base' is taxed in the country where such permanent establishment or the fixed base is located. Different provisions exist for taxation of capital gains arising from transfer of shares. In a number of agreements the right to tax is given to the State of which the company is resident. In some others, the country of residence of the shareholder has this right and in some others the country of residence of the transferor has the right if the share holding of the transferor is of a prescribed percentage. So far as the business income is concerned, the source country gets the right only if there is a 'permanent establishment' or a 'fixed place of business' there. Taxation of business income is on net income from business at the rate prescribed in the Finance Acts. Chapter X may be referred to for a discussion on the subject. Professional Services: Income derived by rendering of professional services or other activities of independent character are taxable in the country of residence except when the person deriving income from such services has a fixed base in the other country from where such services are performed. Such income is also taxable in the source country if his stay exceeds 183 days in that financial year.

Personal Services: Income from dependent personal services i.e. from employment is taxed in the country of residence unless the employment is exercised in the other state. Even if the employment is exercised in any other state, the remuneration will be taxed in the country of residence if i. the recipient is present in the source State for a period not exceeding 183 days; and ii. the remuneration is paid by a person who is not a resident of that state; and iii. the remuneration is not borne by a permanent establishment or a fixed base. Others: The agreements also provides for jurisdiction to tax Director's fees, remuneration of persons in Government service, payments received by students and apprentices, income of entertainers and athletes, pensions and social security payments and other incomes. For taxation of income of artists, entertainers sportsman etc, CBDT circular No. 787 dates 10.2.2000 may be referred to. Unique clauses of agreement Agreements also contain clauses for non-discrimination of the national of a contracting State in the other State vis-a-vis the nationals of that other State. The fact that higher rates of tax are prescribed for foreign companies in India does not amount to discrimination against the permanent establishment of the nonresident company. This has been made explicit in certain agreements such as one with U.K. Provisions also exist for mutual agreement procedure which authorises the competent authorities of the two States to resolve any dispute that may arise in the matter of taxation without going through the normal process of appeals etc. provided under the domestic law. Another important feature of some agreements is the existence of a clause providing for exchange of information between the two contracting States which may be necessary for carrying out the provisions of the agreement or for effective implementations of domestic laws concerning taxes covered by the tax treaty. Information about residents getting payments in other contracting States necessary to be known for proper assessment of total income of such individual is thus facilitated by such agreements. Favourable Domestic Law

It may sometimes happen that owing to reduction in tax rates under the domestic law taking place after coming into existence of the treaty, the domestic rates become more favourable to the non-residents. Since the objects of the tax treaties is to benefit the non-residents, they have, under such circumstances, the option to be assessed either as per the provisions of the treaty or the domestic law of the land. Tax Deducted at Source In order to avoid any demand or refund consequent to assessment and to facilitate the process of assessment, it has been provided that tax shall be deducted at source out of payments to nonresidents at the same rate at which the particular income is made taxable under the tax treaties. As a result of amendment made by the Finance Act, 1997 exempting from tax income from dividend declared after 1.6.1997, no deduction is required to be made in respect of such income.