India and Sri Lanka signed a double tax avoidance agreement (DTAA) in 2013, which aims to prevent individuals and companies from being taxed twice on their income. The agreement intends to promote economic cooperation between the two nations and bring certainty to taxpayers regarding their tax liabilities.
Under the DTAA, residents of India and Sri Lanka are exempt from paying taxes on their income in the other country unless they have a permanent establishment (PE) in that country. A PE is defined as a fixed place of business where the business is wholly or partly carried out.
If an individual or company has a PE in the other country, they will be subject to the tax laws of that country. For instance, if an Indian company has a subsidiary in Sri Lanka, it will be subject to Sri Lankan tax laws on its income earned in Sri Lanka, and vice versa.
The DTAA also covers various types of income, including business profits, dividends, interest, royalties, and capital gains. It ensures that these types of income are taxed only once in either India or Sri Lanka, depending on the residency of the taxpayer.
Furthermore, the DTAA provides for the exchange of information between the two countries to prevent tax evasion. The two countries can exchange information on tax matters, including bank and financial information, to enforce their respective tax laws.
The DTAA has significant benefits for individuals and companies doing business in India and Sri Lanka. It helps avoid double taxation, reduces the tax burden on businesses, and promotes economic cooperation between the two nations. Additionally, it provides a framework for resolving any tax-related issues that may arise between India and Sri Lanka.
Overall, the India Sri Lanka double tax agreement is a significant step towards encouraging foreign investment and promoting economic cooperation between the two nations. It is a win-win situation for taxpayers and governments alike and reinforces the importance of international tax treaties in today`s globalized world.