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Why in News:
- India has revised its Double Taxation Avoidance Agreement (DTAA) with Mauritius to counter treaty misuse aimed at tax evasion or avoidance.
About:
- Double Taxation: Double taxation refers to the imposition of taxes on the same source of income by two different jurisdictions, which can occur both domestically (between corporate and personal levels) and internationally (between two countries).
- Role of DTAA: A Double Taxation Avoidance Agreement is designed to prevent international double taxation, thereby fostering economic exchanges such as investment and trade between the two signing nations. The DTAA may cover all income types or specific categories, depending on the agreement specifics.
- Benefits of DTAA:
- Deduction: Allows deductions for taxes paid to foreign governments in the taxpayer’s home country.
- Exemption: Provides tax relief in one of the two countries involved.
- Tax Credit: Offers a credit in the taxpayer’s country of residence for taxes paid abroad.
- Global Compliance and BEPS: The amendment aligns India’s treaty practices with global standards, particularly the Base Erosion and Profit Shifting (BEPS) actions, aimed at preventing treaty abuse and ensuring fair taxation practices globally.
Key Points of Revision of DTAA:
- Inclusion of Principal Purpose Test (PPT): The amended agreement introduces the Principal Purpose Test, which stipulates that tax benefits will not apply if the primary intent behind a transaction or arrangement was to secure those benefits.
