India signs double taxation avoidance pact with Hong Kong

India and Hong Kong today signed a bilateral double taxation avoidance treaty to curb evasion and promote flow of investment.

The Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion will stimulate flow of investment, technology and personnel from India to Hong Kong Special Administrative Region (HKSAR) and vice versa, an official statement said.

It will also prevent double taxation and provide for exchange of information between the two countries.

"It will improve transparency in tax matters and will help curb tax evasion and tax avoidance," the statement added.

Under Section 90 of the Income-tax Act, 1961, India can enter into an agreement with a foreign country or specified territory for avoidance of double taxation of income, for exchange of information for the prevention of evasion.

Nangia & Co Managing Partner Rakesh Nangia said the double taxation avoidance agreement (DTAA) will give protection against double taxation to over 1,500 Indian companies and businesses that have a presence in Hong Kong as well as to Hong Kong-based companies providing services in India.

"It will provide clarity to businesses regarding tax rates and tax jurisdictions, as they will now be taxed in only one of the countries," he said.

The treaty would reduce the withholding tax rates that can be applied to interest or royalties. "This will allow Hong Kong investors to make investment decisions with greater certainty and will reduce compliance costs for businesses," Nangia said.