International tax treaties

Tax consultancy firm in Delhi

India has entered into double taxation avoidance agreements (DTAs) with the following countries:

  • Armenia
  • Australia
  • Austria
  • Bangladesh
  • Belarus
  • Belgium
  • Brazil
  • Bulgaria
  • Canada
  • China
  • Cyprus
  • Czech Republic
  • Denmark
  • Egypt
  • Finland
  • France
  • Germany
  • Greece
  • Hashemite Kingdom of Jordan
  • Hungary
  • Indonesia
  • Ireland
  • Israel
  • Italy
  • Japan
  • Kazakhstan
  • Kenya
  • Korea
  • Kuwait
  • Kyrgyz Republic
  • Libya
  • Malaysia
  • Malta
  • Mauritius
  • Mongolia
  • Morocco
  • Namibia
  • Nepal
  • Netherlands
  • Norway
  • Oman
  • Philippines
  • Poland
  • Portuguese Republic
  • Qatar
  • Romania
  • Russia
  • Saudi Arabia
  • Singapore
  • Slovenia
  • South Africa
  • Spain
  • Sri Lanka
  • Sudan
  • Sweden
  • Swiss Confederation
  • Syria
  • Tanzania
  • Thailand
  • Trinidad and Tobago
  • Turkey
  • Turkmenistan
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Arab Republic
  • United Kingdom
  • United States of America
  • Uzbekistan
  • Vietnam
  • Zambia
  • Zealand

India has limited agreements with the following countries in respect of the income of airlines/merchant shipping:

  • Afghanistan
  • Bulgaria
  • Czechoslovakia
  • Ethiopia
  • Iran
  • Kuwait
  • Lebanon
  • Oman
  • Pakistan
  • People’s Democratic Republic of Yemen
  • Russian Federation
  • Saudi Arabia
  • Switzerland
  • United Arab Emirates
  • Yemen Arab Republic

Existence of Tax credits

Indian tax law authorizes the Indian Government to enter into an agreement with the government of any other country to grant relief in respect of income on which taxes have been paid in both countries, to avoid double taxation of income, to exchange information for the prevention of evasion or avoidance of income tax and to recover income tax.

The Finance Act 2006 introduced a new sec 90A, whereby any specified association in India may enter into agreement with their counterparts in the specified territory outside India and the Central Government may, by notification in the Official Gazette make such provision as may be necessary for adopting and implementing such agreement to grant relied in respect of income on which taxes have been paid in both countries, to avoid double taxation of Income, to exchange information for the prevention of evasion or avoidance of income tax and to recover income tax.

Unilateral relief is also available, mainly to persons who are resident in India. The relied is allowed in respect of income which has accrued outside India where tax is payable both in the foreign country and in India. The foreign country must be one with which India has no tax treaty and the tax must actually have been paid in that country.

Indian tax laws do not contain any provision for tax sparing. Double tax relief is granted but only with reference to tax actually paid. Likewise, tax treaties entered into by India usually do not provide for tax sparing.

Procedures for resolving tax disputes

A taxpayer aggrieved by an order of the assessing officer can appeal against the order to the Commissioner (Appeals). If not satisfied, the taxpayer can take the dispute to the Income Tax Appellate Tribunal and thereafter, to the High Court and Supreme Court. Taxpayers may also file a petition for revision before the Commissioner.

The Income Tax Act 1961 (the “Act”) gives the Commissioner (Appeals) and the Appellate Tribunal considerable autonomy and powers to determine the procedure to be followed in appeals.

An Income Tax Settlement Commission has been established to settle cases relating to assessment and reassessment. The Income Tax Settlement Commission is constituted by the Central Government and it consists of a Chairman and as many Vice Chairman and other members as the Central Government may think fit for settling a particular case. The Chairman and the Vice Chairman function within the Department of the Central Government dealing with direct taxes.

The Appellate Tribunal, consisting of judicial and accountant members, is constituted by the Central Government to hear appeals from the orders of the assessing officer, Deputy Commissioner (Appeals) and Commissioner (Appeals).

A reference on a question of law may be made to the High Court and, in certain cases, directly to the Supreme Court.

Advance Tax Ruling Scheme

The Advance Tax Ruling Scheme has been introduced to facilitate the inflow of foreign investment. The scheme is applicable to non-residents. Under the scheme, advance tax ruling can be given on questions of law or fact or both in relation to a proposed or concluded transaction. In addition to non-residents, residents notified in the Official Gazette by the Central Government will also be allowed to seek advance tax ruling. Ruling are to be given within a period of six months.

Fiscal Year

The Indian assessment year runs from 1 April of every year to 31 March of the next year. Income earned in The “previous year” (the accounting year of the assessee) is taxed in each assessment year.

Method of payment of tax liabilities

Income tax returns, in the prescribed form and verified, are to be submitted to the assessing officer by the due date (sec 139 of the Income Tax Act):

“Due date” means:

(a) where the assessee is-

• a company;
• a person (other than a company) whose accounts are required to be audited under the Act or under any other law for the time being in force; or
• a working partner of a firm whose accounts are required to be audited under the Act or under any other law for the time being in force.

“The 30th day of September of the assessment year”:

(b) In case of any other assessee, the 31st day of July of the assessment year.

Permanent Establishment (PE)

The permanent establishment concept transaction is executed through the internet for years. The concept of PE has formed the basis of application of rules relating to sharing of revenues by various tax jurisdiction in cross-border transactions. One of the conditions for PE is to have a fixed place of or business in any foreign jurisdiction. The concept of PE assumes great importance with regard to Double Taxation Avoidance Agreements (DTAs). Sections 92, 92A, 92B, 92C, 92D and 92E which provide for the computation of income from international transactions as envisaged under the DTA, must be construed to include a PE. Sub-section (iiia) of sec 92F defines a PE to include “a fixed place of business through which the business of the enterprise is wholly or partially carried out”. In addition, sub-section (iii) defines an enterprise to include a person or a PE of such person and includes even those cases where the activity or the business is carried on, directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places. Taxation of business income under the DTA would be applicable only if there is a PE or a “fixed place of business” in the source country. Similarly gains arising from the transfer of movable property forming part of the business properly of a PE is taxed in the country where such PE or fixed base is located.

Some examples of permanent establishments are as follows:

a. a place of management;
b. a branch;
c. an office;
d. a factory;
e. a workshop;
f. a mine, oil well or other place of extraction of natural resources.
g. a building site or construction or assembly project which exists for an agreed period; and
h. provision of supervisory activities for a minimum agreed period on a building site or construction site or construction or assembly project.

The term “permanent establishment” in generality of such agreements does not include:

a. The use of facility solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;
b. The maintenance of stock of goods or merchandise solely for the purpose of storage or display;
c. The maintenance of stock of goods or merchandise solely for the purpose of processing by another enterprise;
d. The maintenance of a fixed place of business solely for the purpose of advertising of similar activities which have a preparatory or auxiliary character for the enterprise.

The Supreme Court has started in one of the latest case that circulars or instructions issued by the Central Board of Direct Taxes are binding on the revenue authorities.