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INDIA- SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT
The India- Singapore Double Taxation Avoidance Agreement (“DTAA”) was first signed on 24 August, 1994 which came into effect from 1 September, 1994. However, it was amended on 1 June, 2016 by a protocol to the agreement. The amended DTAA thereafter came into force from 27 December, 2016, and its provisions have been applicable from the assessment year 2017-18 onwards in India and the 2017 year of assessment in Singapore.
The India- Singapore DTAA is applicable to individuals and companies who are residents of either India or Singapore and have income arising in the other country. The DTAA applies to the following types of income:
- Business income: The DTAA applies to income earned from a business or profession in India or Singapore.
- Dividends: The DTAA applies to income earned from dividends paid by a company resident in India or Singapore.
- Interests: The DTAA applies to income earned from interest paid by a resident of India or Singapore.
- Royalties: The DTAA applies to income earned from royalties paid by a resident of India or Singapore.
- Capital gains: The DTAA applies to income earned from the sale of shares or other assets in India or Singapore.
To claim the benefits of the DTAA, a resident of India or Singapore must provide a tax residency certificate issued by the tax authorities of their home country. The certificate serves as proof of residency and helps to avoid double taxation of income of the assesse.
Some of the key provisions of the India-Singapore DTAA include:
- Taxation of business profits: Business profits earned by a Singaporean resident in India, shall be taxable in India only if the resident has a permanent establishment in India. Similarly, business profits earned by an Indian resident in Singapore, shall be taxable in Singapore only if the resident has a permanent establishment in Singapore.
- Taxation of dividends: Dividends paid by a company resident in India to a Singaporean resident, shall be taxed at a maximum rate of 15% in India, while dividends paid by a company resident in Singapore to an Indian resident, shall be taxed at a maximum rate of 10% in Singapore.
- Taxation of interest and royalties: Interest and royalties paid by an Indian resident to a Singapore resident are subject to withholding tax at a maximum rate of 10%, while interest and royalties paid by a Singapore resident to an Indian resident are subject to withholding tax at a maximum rate of 15%.
- Capital gains: Capital gains arising from the sale of shares of a company resident in India, shall be taxable in India if more than 50% of the value of the shares is derived from immovable property located in India. However, if the shares are listed on a recognized stock exchange, the capital gains, shall be taxable only in the country of residence of the seller. Capital gains arising from the sale of shares of a company resident in Singapore, shall be taxable only in Singapore.
- The tax authorities of the contracting countries shall exchange tax information as and when necessary.
- The protocol provides that grandfathered investments i.e. shares acquired on or before 1 April, 2017 which are not subject to the provisions of the protocol, shall be subject to a revised limitation of benefit in order to avail of the capital gain tax benefits under the DTAA.
- Profits derived by an enterprise of a contracting state from the operation of ships or aircraft in international traffic, shall be taxable only in that state.
Overall, the India- Singapore DTAA provides for a favorable tax regime for businesses and investors operating in both the contracting countries, and helps to promote trade and investment between the two nations. The DTAA is further in consonance with the international standards and practices and was amended after the signing of the ‘The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting’ so as to bring in action the provisions that were agreed upon in the convention. Broadly speaking, the DTAA applies to only the income tax imposed in both the states but it has become broad and progressive due to the inclusion of clauses like mutual agreement procedure, exchange of information, limitation of benefits, etc.
To know more about DTAA relations between India and Singapore, please download our Guide.