Jun. 23 – The revised discussion paper on India’s new Direct Tax Code has assured that Double Tax Avoidance Agreements (DTAA) made with other countries will not be annulled when the new tax code is implemented.
Specifically the paper says that, “The current provisions of the Income-tax Act provide that between the domestic law and relevant DTAA, the one which is more beneficial to the taxpayer will apply.”
“However, this is subject to specific exceptions e.g., the taxation of a foreign company at a rate higher than that of a domestic company is not considered as a less favorable charge in respect of the foreign company.” This is good news for companies operating in the country but registered in tax havens.
Two countries will enter into a DTAA to define the taxation right of each state. A DTAA provides certainty on how and when will income of a particular kind be taxed and by which contracting state.
If one state is allowed to tax a certain income then a provision is made for the other state to give tax credit or exemption to that income in order to avoid double taxation.
India has so far signed 83 effective DTAA and limited tax treaties with 20 countries. For the complete list of India’s DTAA click here.
