Political situation in Nepal not to affect DTAA: PM

The political situation came up for discussions during a meeting with Prime Minister Manmohan Singh and his Nepalese counterpart Baburam Bhattarai on the sidelines of the Rio+20 summit here.

"The double taxation pact is in place and so is the case with other bilateral pacts signed so far," Foreign Secretary Ranjan Mathai told reporters after the meeting.

Bhattarai has called new elections for November after the term of the Constituent Assembly expired without political leaders completing the task of writing a new Constitution.

The Constituent Assembly was elected to a two-year term in 2008 to draft a new Constitution but has been unable to finish the task. Its tenure has been extended four times, but the Supreme Court rejected any further extensions.

The revised tax treaty was signed during Finance Minister Pranab Mukherjee's visit to Nepal last year. It will replace the 1987 treaty.

The agreement, among other things, will facilitate exchange of information on banking between the two countries and will exempt Indian investors and traders from paying tax in India once they pay taxes in Nepal.

India is the largest source of foreign investments in Nepal and the bilateral trade between the two countries is estimated to be USD 2.7 billion in 2010-11.

During his talks with Bhattarai, Prime Minister Singh said he was confident that all parties in Nepal would sit together and find a way out to deal with the political situation.

Prime Minister Singh also had a meeting with Sri Lankan President Mahinda Rajapakse.