INDIA- INDONESIA DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Republic of Indonesia signed a Double Taxation Avoidance Agreement (“DTAA”) on 27 July, 2012 for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income, which came into effect from 05 February, 2016. The DTAA has been signed with the aim to facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Indonesia.

Applicability

The provisions of the DTAA apply to income tax and related surcharges in India and the income tax in Indonesia. It covers persons who are residents of one or both of the contracting states and are liable to tax therein by any such reason based on the law of that state, on the basis of their domicile, residence, place of management, place of incorporation, or any other criterion as set out.

Key takeaways

• Dividends paid by a company, interest arising, royalties, fees for technical services and capital gains derived by alienation of an immovable property, in a contracting state to a resident of the other contracting state may be taxed in that other state.
• There are similar tax provisions with regards to income by artists, teachers, sportspersons, students and apprentices.
• With respect to eliminating of double taxation, where a resident of a contracting state derives income which, in accordance with the provisions of the DTAA, may be taxed in the other contracting state; the first-mentioned state shall allow the taxation amount as deduction to that resident on the income tax paid by him in that other state.
• The agreement shall not prevent a contracting state from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion.

Inferences

The DTAA talks about the elimination of double taxation wherever applicable in India and Indonesia. It covers all the required definitions in order to make it precise and avoid confusion in its application to the individuals, taxes and businesses carried on. The DTAA also consists of provisions relating to non-discrimination, mutual agreement, termination and exchange of information to facilitate co-operation. It provides various beneficial clauses like a withholding tax rate of 10% on interest, dividend and royalty with an exemption to government institutions.