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Purpose of DTAA
• To eliminate international double taxation
• To prevent fiscal evasion and avoidance
• To allocate taxing rights between contracting states
• To prevent tax discrimination
• Exchange of information
SIGNIFICANCE OF THE DTAA
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If any income is taxable in India and is also taxable in
the country of the residence of the taxpayer, the taxes
paid in India would be allowed as a credit against the
tax payable on the income in the taxpayer’s country of
residence. Thus the same income will not be subjected to
tax both in India and also in the taxpayer’s country of
residence.
However, in certain specified circumstances, the benefit of
tax credit is available in the other State even though no
tax in India. This principle is followed in respect of tax
incentives granted for developmental activities. There are
wide ranging tax concessions relating to certain industrial
activities, which are considered necessary to promote
India’s economic development. In order to attract foreign
investment in such areas, the benefit of tax concessions is
intended to be passed on to foreign entrepreneurs operating
in India so that they become eligible for a tax credit in
their country notwithstanding the fact that no corresponding
amount of tax has been paid in India for such activities.
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The provisions of DTAA override the provisions of Indian
Income-tax Act. In other words, wherever there is a
conflict in the provision of the DTAA and the Indian
Income-tax Act, the provision of DTAA shall prevail.
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