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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Business Restructuring

Under the Income-tax Act, 2025 provisions on agreements with foreign countries or specified territories, an agreement for avoidance of double taxation is to be entered into in a way that:

The agreement should avoid double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping arrangements aimed at giving indirect benefits to residents of other countries. It may also cover exchange of information to prevent evasion or avoidance.

  1. AAllows treaty-shopping so residents of third countries can obtain the relief indirectly
  2. BAvoids double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shoppingCorrect
  3. CIs limited to granting relief and cannot provide for exchange of information
  4. DApplies only where the other country taxes the income at a rate higher than India

Explanation

The text says the agreement may avoid double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty-shopping for indirect benefit to residents of another country. Exchange of information to prevent evasion or avoidance is also a permitted purpose, so the third and first options are wrong.

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