India-Korea new DTAA to tax capital gains at source

“A new revised DTAA between India and Korea for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income was signed on 18th May 2015. “It has now come into force on 12th September 2016, on completion of procedural requirements by both countries. Provisions of the new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017,” said a Finance Ministry statement. The existing pact provides for residence-based taxation of capital gains on shares. 

“The existing DTAA provided for residence-based taxation of capital gains on shares. In line with India’s policy of taxation of capital gains on shares, the revised DTAA provides for source-based taxation of capital gains arising from alienation of shares comprising more than 5 per cent of share capital,” the statement said. 

“The revised DTAA aims to avoid the burden of double taxation for taxpayers of two countries in order to promote and stimulate flow of investment, technology and services between India and Korea. It provides tax certainty to the residents of both countries,” it said. Towards promoting cross-border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates to 10 per cent on royalties, or fees for technical services, from 15 per cent, and to 10 per cent on interest income from 15 per cent. 

To facilitate the movement of goods through shipping between two countries and in accordance with international principle of taxation of shipping income, the revised DTAA provides for exclusive residence-based taxation of shipping income from international traffic. The DTAA also has an updated provision for exchange of information which provides that the country from which information is requested cannot deny the information on the ground of domestic tax interest. Moreover, the revised DTAA contains express provisions to facilitate exchange of information held by banks. Information exchanged under the revised DTAA can now be used for other law enforcement purposes with the authorisation of information supplying country.