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Double Taxation Avoidance Agreement (DTAA ) of India on 14th July 2009, 9:58 pm
CSOC - News Reporter
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 non-resident 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.
India has comprehensive Double Taxation Avoidance Agreement (DTAA ) with 79 countries. What it means is that there are agreed rate of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under Income Tax Act 1961 of India ,there are two provisions - Section 90 and section 91 - which provides specific relief to tax payers to save them from DTAA. Section 90 is for tax payer 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 DTAA. Thus, India gives relief to both kind 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 is 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.
India has comprehensive Double Taxation Avoidance Agreement (DTAA ) with 79 countries. What it means is that there are agreed rate of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under Income Tax Act 1961 of India ,there are two provisions - Section 90 and section 91 - which provides specific relief to tax payers to save them from DTAA. Section 90 is for tax payer 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 DTAA. Thus, India gives relief to both kind 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 is 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.