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India-Indonesia Double Taxation Avoidance Agreement (DTAA)

The India-Indonesia Double Taxation Avoidance Agreement (DTAA) is a significant bilateral agreement signed between the governments of India and the Republic of Indonesia. This agreement aims to prevent double taxation and fiscal evasion with respect to taxes on income. The DTAA was signed on 27 July 2012 and became effective on 05 February 2016. Its primary objective is to promote mutual economic cooperation, stimulate investment, facilitate the transfer of technology, and enhance services between the two nations.

Applicability

The provisions of the DTAA apply to income tax and related surcharges in India and income tax in Indonesia. It covers individuals who are residents of one or both of the contracting states and are liable to taxation based on criteria such as domicile, residence, place of management, place of incorporation, or any other factors outlined in the respective state’s laws.

Key Takeaways

Here are the key takeaways from the India-Indonesia DTAA:

  1. Taxation of Dividends, Interest, Royalties, Fees, and Capital Gains: Dividends paid by a company, interest income, royalties, fees for technical services, and capital gains arising from the sale of immovable property in a contracting state to a resident of the other contracting state may be taxed in the latter state.
  2. Taxation of Income by Specific Categories: The DTAA contains provisions for taxing income earned by specific categories, such as artists, teachers, sportspersons, students, and apprentices.
  3. Elimination of Double Taxation: To avoid double taxation, if a resident of one contracting state derives income that, according to the DTAA, can be taxed in the other contracting state, the first-mentioned state allows the tax amount as a deduction for the income tax paid in the other state.
  4. Sovereign Application of Domestic Law: The agreement does not prevent either contracting state from applying its domestic laws and measures concerning tax avoidance or evasion.

Inferences

The India-Indonesia DTAA focuses on the elimination of double taxation in both India and Indonesia. It provides clear and precise definitions to prevent confusion in its application to individuals, taxes, and businesses. The DTAA includes provisions related to non-discrimination, mutual agreement, termination, and the exchange of information to facilitate cooperation.

The agreement offers various advantageous clauses, including a withholding tax rate of 10% on interest, dividends, and royalties, with exemptions for government institutions. It enhances economic ties and reduces tax-related impediments for businesses and individuals operating between India and Indonesia.

For comprehensive legal advice or further information on the India-Indonesia Double Taxation Avoidance Agreement or any other legal matters, please do not hesitate to contact Chandrawat & Partners. Our legal experts specialize in international tax agreements and are dedicated to providing tailored legal assistance to meet your specific needs.

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To know more about DTAA relations between India and Indonesia, please download our Guide.

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