Agreement for avoidance of double taxation between India and Indonesia: Commencement of - PRESS RELEASE - Income Tax

Agreement for avoidance of double taxation between India and Indonesia : Commencement of Dated 06-02-1988 Notification Number: PRESS RELEASE India and Indonesia have entered into an agreement for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income. The agreement which came into force on 19-12-1987 shall have effect in India in respect of income arising in any accounting year beginning on or after 1st April, 1988. In Indonesia, the agreement shall have effect in respect of income arising in any year of income beginning on or after 1st January, 1988. Under this agreement, business profits of an enterprise of one country shall be taxable in the other country only if it maintains a permanent establishment like a branch, office, factory or place of management, etc. there. The agreement also provides for exemption from taxation of income from shipping and air transport in country of source. Gross income from dividends, interest and royalties will be taxed in the source country at concessional rates as laid down in the agreement. Under the agreement, double taxation of income shall be avoided by the credit method, according to which the country of residence will allow credit for the taxes paid in the country of source against its own taxes. Both the countries would give credit not only for taxes levied in the other country but also for taxes spared in the country of source for purposes of its economic development. With the coming into effect of this agreement, it is expected that the flow of capital, technology and personnel between the two countries will be further stimulated as the tax obstacles that may be inhibiting such a flow will be removed.