India-Oman DTAA Amended: TDS Rates Reduced

In accordance with the recent reports, India and Oman have amended their Double Taxation Avoidance Agreement (DTAA) to make it more updated and relevant for business in today’s environment. The aim behind this amendment is to expand the definition of “permanent establishment” to even cover digital or service-based operations. Meaning, if any business does not have any physical office or place of work in the other country, it can still be considered as having a “permanent establishment” if it performs digital or service-based operations in that country. Hence, now, companies offering digital services or remote work from other countries may be considered under tax rules more accurately.

A Double Taxation Avoidance Agreement (DTAA) is a treaty signed between two countries to avoid taxing the same income twice in a financial year (one in the country where the income is earned and a second time in the country where the individual or the company resides). India has signed such an agreement with Oman, and recently, some significant amendments have been introduced in the DTAA.

The second big amendment is the reduction in withholding tax rates. Earlier, when a company in one country used to make a payment to some other company in another country in return for interest, royalties, or technical services. A withholding tax of 15% was applied. Now, as per the made amendment, this tax rate has been reduced to 10%. This amendment encourages more investments between the two countries (India and Oman), as cross-border payments become cheaper.

To prevent unfair use of the treaty among individuals and companies just for saving taxes, a new Principal Purpose Test (PPT) rule has been introduced. Under this rule, any individual or company caught performing any transaction just for claiming a tax benefit under the treaty or not for any real business purpose can have the tax benefit denied. Hence, companies are asked to give a real economic reason and not a designed one to enjoy tax benefits.

The amendment also improves the Mutual Agreement Procedure (MAP). This process helps tax authorities of both countries resolve tax disputes more easily and fairly. Also, the agreement now allows for better exchange of information between the tax departments of India and Oman. This will help both countries detect and prevent tax evasion and money laundering more effectively.

These updates make the treaty more suitable for modern business activities, especially those that are digital or service-based. The changes will help create a more stable and predictable tax environment for businesses operating in both countries. It will encourage investment, make tax compliance simpler, and reduce the chances of disputes. However, companies will need to be careful and ensure that their transactions are genuine and not just designed to save tax because of the new anti-abuse rules.