GS 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

Why in news?

• The Government of the Republic of India and the Government of the People’s Republic of China have amended the Double Taxation Avoidance Agreement (DTAA) for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income, by signing a Protocol.

Significance:

• Avoidance of double taxation
• Prevention of fiscal evasion with respect to taxes on income

Highlights:

• Section 90 of Income-tax Act, 1961 allows India to enter into agreements with countries or specified territories for the avoidance of double taxation, for the exchange of information and for the prevention of the evasion.
• The signed Protocol will update the existing provisions for the exchange of information.
• It will incorporate required changes for the implementation of standards related to the treaty under the Action reports of Base Erosion&Profit Shifting (BEPS) Project.
• It will also bring in changes as per BEPS Action reports as agreed upon by the two sides. The protocol amending DTAA will help to prevent tax evasion by allowing the exchange of information.

Double Taxation Avoidance Agreement (DTAA):

• The DTAA, or Double Taxation Avoidance Agreement is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.
• A DTAA 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.
• India has DTAAs with more than eighty countries.