Article 22 - Elimination of double taxation - Nepal (Old - Effective upto 31-3-2013)

Chapter IV - Methods of elimination of double taxation Article 22 - Elimination of double taxation - 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. Where income is subject to tax in both Contracting States, relief from double taxation shall be given in accordance with this article. 2. Subject to the provisions of the law of Nepal regarding the allowance as a credit against Nepals tax or tax payable in territory outside Nepal (which shall not affect the general principle hereof) Indian tax payable under the law of India and in accordance with the provisions of this Agreement, whether directly or by deduction, on income from sources within India shall be allowed as a credit against any Nepal tax computed by reference to the same items of income by reference to which the Indian tax is computed. 3. For the purpose of the credit referred to in paragraph 2, the term Indian tax payable shall be deemed to include any amount by which tax has been reduced by the special incentive measures under : (i) sections 10(4), 10(4A), 10(6)(viia), 10(15)(iv), 10(28), 10A, 32A, 33A, 80HH, 80HHA, 80-I and 80L of the Income-tax Act, 1961 (43 of 1961) ; and (ii) any other provisions, which may subsequently be enacted granting a reduction of tax which the competent authorities of the Contracting States agree to be for the purposes of economic development. 4. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax payable in a territory outside India (which shall not affect the general principle hereof) Nepal tax payable under the law of Nepal and in accordance with the provisions of this Agreement whether directly or by deduction, on income from sources within Nepal shall be allowed as a credit against any Indian tax computed by reference to the same items of income by reference to which Nepal tax is computed : Provided that such credit shall not exceed Indian tax (as computed before allowing any such credit), which is appropriate to the income derived from sources within Nepal, so however, that where such resident is a company by which surtax is payable in India, the credit aforesaid shall be allowed in the first instance against income-tax payable by the company in India, and as to the balance, if any, against payable by it in India. 5. For the purpose of paragraph 4 of this article the term Nepal tax payable shall be deemed to include any amount which would have been payable as Nepal tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under : (a) sub-section (2) of section 42 of the Nepal Income-tax Act, 2031 (1974), so far as they were in force on, and have been modified since, the date of the signature of this Agreement, or have been modified only in minor respects so as not to affect their general character ; or (b) any other provisions which may subsequently be made granting an exemption or reduction of tax which is agreed by the competent authorities to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character. 6. Where under this Agreement a resident of a Contracting State is exempt from tax in that Contracting State in respect of income derived from the other Contracting State, then the first-mentioned Contracting State may, in calculating tax on the remaining income of that person, apply the rate of tax which would have been applicable if the income exempted from tax in accordance with the Agreement had not been so exempted.