METHODS FOR ELIMINATION OF DOUBLE TAXATION ARTICLE 22 INCOME TAX (INDIA & BHUTAN)

1. The laws in either of the contracting states shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. Where income is subject to tax in both contracting states, relief from double taxation shall be given in accordance with this Article.


2. Double taxation shall be eliminated as follows:

(i) In India:(a) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Bhutan, India shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in Bhutan. Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in Bhutan.(b) Where in accordance with any provision of the Agreement income derived by a resident of India is exempt from tax in India, India may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.(ii) In Bhutan:(a) Where a resident of Bhutan derives income which, in accordance with the provisions of this Agreement, may be taxed in India, Bhutan shall allow as a deduction from the tax on the income of that resident, an amount equal to the tax paid in India. Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in India.(b) Where in accordance with any provision of the Agreement, income derived by a resident of Bhutan is exempt from tax in Bhutan, Bhutan may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.


3. The tax payable by an enterprise (being a permanent establishment) in Bhutan mentioned in paragraphs 1 and 2 of this ARTICLE shall be deemed to include the tax which would have been payable but for the following tax incentives in education and health sectors granted under the Fiscal Incentives, 2010 issued by Ministry of Finance, Royal Government of Bhutan (vide Notification Ref No. DRC/TAX-A&L/HOL/2010/3656 dated 2nd April, 2010) which are designed to promote economic development in Bhutan:

(i) Education sector: An educational or vocational institute established outside Thimphu and Phuentsholing cities (with a minimum enrolment capacity of 200 students);(ii) Health sector: A high end private health service centre or hospital (with a minimum project cost of Rs/Nu 200 million).


4. Notwithstanding the provisions of paragraph 3, Bhutanese tax shall not be deemed to have been paid under that paragraph of this ARTICLE in respect of:

(i) income by way of dividends, interest, capital gains or from activities not directly connected with the running of educational or vocational institute or health service centre or hospital, as the case may be; or(ii) income derived from any arrangement, entered into by an Indian resident, covered by the provisions of ARTICLE 27(Limitation of Benefits) of the Agreement.


5. The provisions of paragraph 3 shall apply for the first seven years from the date of entry into force of this Agreement. This period may be extended by mutual agreement between the competent authorities.

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