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Monday, March 4, 2024

Strategies for Preventing Double Taxation in India

Double Taxation India has entered into double tax avoidance agreements with several countries, including the Netherlands, which feature a most favoured nation (MFN) clause. Similar MFN clauses are found in agreements with Slovenia, Lithuania, France, Switzerland, and Sweden, all of which are members of the OECD. The MFN clause has a significant impact, as it dictates that if a lower rate of withholding tax on dividend, interest, royalties, or fees for technical services is established in a tax treaty between India and another OECD member country, that lower rate will apply to all OECD nations with an MFN clause. Recently, the Supreme Court of India ruled that the lower rate, such as the five per cent rate in the Indo-Slovenia tax treaty, will only be applicable to a Netherlands-based company if the Indian government issues a notification. This decision reversed the Delhi High Court’s ruling that the MFN clause is automatically triggered, and the lower rate applies as soon as India enters into an agreement with a lower tax rate.

Easing Documentation for Medium, Small, and Micro Enterprises (MSMEs): Double Taxation

While large borrowers worldwide must deal with extensive documentation, India has made it easier for MSMEs by providing unsecured loans. During the current year, there has been a notable increase in the demand for unsecured loans from MSMEs, particularly from smaller cities, with a remarkable 73 per cent year-on-year growth. This surge can be attributed to India’s robust digital public goods infrastructure, a new data ecosystem powered by credit bureaus, and the expansion of the goods and services tax network that has benefited small businesses. Additionally, the government’s scheme provides street vendors with collateral-free loans up to a certain limit, further empowering marginalized communities.

Empowering Women in India: Providing Equal Opportunities and Basic Necessities: Double Taxation

The Indian government has set a significant policy focus on providing equal opportunities and essential amenities to women in the country. Notably, approximately 27 per cent of newly constructed houses are registered in the name of women, while 69 per cent are in the joint names of husbands and wives. Various initiatives aim to ensure that every woman earns a minimum annual income of Rs100,000 through skilled jobs offered by self-help groups. Women are provided training in various fields, including the manufacture of LED bulbs, plumbing services, and the operation and repair of drones, benefitting around 90 million women. Microcredit is extended through bank accounts opened in women’s names, and as of August 2023, 56 per cent of all new bank accounts are solely operated by women. Additionally, special insurance packages cater to women’s needs and cover marriage expenses for daughters.

In conclusion, India is actively working to strengthen its taxation agreements, simplify procedures for MSMEs, and promote women’s empowerment, illustrating the nation’s commitment to fostering economic growth and social development.

H. P. Ranina is a practicing lawyer specializing in India’s tax and exchange management laws.

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