News

DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)

Written by Talent KAS

Related Topic in KAS Prelims Syllabus:

Economy [Paper-II]: Indian Public Finance, Indian Tax System

News

Union Cabinet approved the signing of the Double Taxation Avoidance Agreement (DTAA) and protocol between India and Chile for elimination of double taxation.

What is DTAA?

  • It is a tax treaty signed between two or more countries.
  • Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income.
  • It applies in cases where a tax-payer resides in one country and earns income in another.
  • DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc.

Significance of DTAA

  • They are intended to make a country an attractive investment destination by providing relief on dual taxation.
  • Such relief is provided by exempting income earned abroad from tax in the resident country or providing credit to the extent taxes have already been paid abroad.
  • DTAAs also provide for concessional rates of tax in some cases.
  • Favourable tax treatment for capital gains under certain DTAAs (like the one with Mauritius) has encouraged a lot of foreign investment into India.
  • Clear allocation of taxing rights between Contracting States through the Agreement will provide tax certainty to investors & businesses of both countries while augmenting the flow of investment through fixing of tax rates in source State on interest, royalties and fees for technical services.
  • The Agreement and Protocol implements minimum standards and other recommendations of G-20 OECD Base Erosion Profit Shifting (BEPS) Project.
[Source: PIB, The Hindu]

 

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