Treaties

AGREEMENT BETWEEN NEPAL & INDIA TO AVOIDE DOUBLE TAXATION



AGREEMENT BETWEEN HIS MAJESTY'S GOVERNMENT OF NEPAL AND THE GOVERNMENT OF
THE REPUBLIC OF INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND
THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME


His Majesty's Government of Nepal and the Government of the Republic of India, desiring to conclude an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income;

HAVE agreed as follows:

CHAPTER - I

SCOPE OF THE AGREEMENT

Article - 1

PERSONAL SCOPE

This Agreement shall apply to persons who are residents of one or both of the
Contracting States.

Article - 2

TAXES COVERED

1. The taxes to which this agreement shall apply are:
(a) In the case of India:

(i) The income-tax including any surcharge thereon imposed under the Income-tax
Act,1961 (43of 1961),
(ii) The surtax imposed under the Companies (profits) Surtax Act, 1964 (7 of 1964),

(b) In the case of Nepal:

(i) Income-tax imposed under the Income-tax Act, 2031 (hereinafter referred to as "Nepal tax".)

2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present
Agreement in addition to, or authorities of the Contracting States shall notify each
other or anysubstantial changes which are made in their respective taxation laws.

CHAPTER II

DEFINITIONS

Article 3


GENERAL DEFINITIONS


1. In this agreement, unless the context otherwise requires:
a) the term "a contracting state' and "the other contracting state" mean India or
Nepal,as the context requires;
b) the term "Tax" means Indian tax or Nepal tax, as the context requires, but shall
not include any amount which is payable in respect of any default or omission in relation tothe taxes to which this agreement applies or which represents a penalty imposedrelating to those taxes;
c) the term "person" includes an individual, a company and any other entity which is treated as a taxable unit under the taxation laws in force in the respective
contractingStates;
d) the term "company" means any body corporate or any entity which is treated as a company or body corporate under the taxation laws in force in the respective contracting States;
e) the terms "enterprise of a Contracting State" and "enterprise of the other
Contracting State" mean respectively an enterprise carried on by a resident of a contracting state and an enterprise carried on by a resident of the other contracting State;
f) the term "competent authority" means in the case of India the Central Government in the Ministry of Finance (Department of Revenue) or their authorised representative
and in the case of Nepal,His Majesty's Government, Ministry of Finance, or their authorized representative;
g) the term "national" means any individual, possessing the nationality of a contracting State and any legal persons, partnership or association deriving its status from the laws in force in the Contracting state;
h) the term "international traffic" means any transport by an aircraft operated by an enterprise of a contracting State, except when the aircraft is operated solely
between places in the other contracting State;

2. As regards the application of the Agreement by a contracting State, any term not
defined therein shall, unless the context otherwise requires, have the meaning which
it has under the law of that State concerning the taxes to which the Agreement applies.

Article 4

RESIDENT

1. For the purposes of this Agreement, the term "resident of a contracting State" means
any person who under the laws of that State, is liable to tax therein by reason of his domicile,residence place of management or any other criterion of a similar nature.

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the state in which he has a permanent
home available to him; if he has a permanent home available to him in both
States,he shall be deemed to be a resident of the State in which his economic activities areconcentrated;
(b) if he has not a permanent home available to him in either State, he shall be
deemedto be resident of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be
deemedto be a resident of the state in which his economic activities are concentrated;
(d) in cases of dispute, the competent authorities of the contracting States shall
settlethe questionby mutual agreement.

3. Where by reason of the provisions of paragraph 1, a person other than an individual is
aresident of both contracting States, then it shall be deemed to be a resident of the statein which its place ofeffective management is situated.

Article 5


PERMANENT ESTABLISHMENT

1. For the purposes of this agreement, the term "permanent establishment" means a
fixedplace of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
(g) a building site or construction of assembly project, but only where such site,
projector activitycontinues for a period or periods aggregating more than 183
daysin any twelve month period;
(h) the furnishing of services by an enterprise through employees or other
personnel,whereactivities continue within the country for a period or periods aggregating more than 183 days inany twelve-month period.

3. notwithstanding the preceding provisions of the Article, the term "permanent establishment" shall bedeemed not to include:

(a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for thepurpose of storage or display;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for thepurpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods ormerchandise, or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on,
for theenterprise, any other activity of a preparatory or auxiliary character.

4. Notwithstanding the provisions of paragraph 1 and 2, where a person - other than an agent ofindependent status to whom paragraph 5 applies is acting on behalf of an enterprise and has, andhabitually exercises, in a contracting State an authority to conclude contracts on behalf of theenterprise, that enterprise shall be deemed to have
apermanent establishment in that State inrespect of any activities which that person undertakes for the enterprise, unless the activities of suchperson are limited to the purchase of goods or merchandise for the enterprise.

5. An enterprise of a contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in
thatother State through a broker,general commission agent or any other agent of an independent status provided that such personsare acting in the ordinary course of
theirbusiness. However, when the activities of such an agent aredevoted wholly or almostwholly on behalf of that enterprise, he will not be considered an agent of anindependentstatus within the meaning of this paragraph.

6. The fact that a company which is a resident of a contracting State controls or is
controlledby a company which is a resident of the other Contracting State, or which carries onbusiness in that other contracting state (whether through a permanent establishment orotherwise), shall not of itselfconstitute either a company or a permanent establishmentof the other.

CHAPTER III

TAXATION OF INCOME

Article 6


INCOME FROM IMMOVABLE PROPERTY

1. Income derived by a resident of a Contracting State from immovable property
(includingincome from agriculture or forestry) situated in the other Contracting State
may be taxed in that other state.

2. The term "Immovable property" shall have the meaning which it has under the law of
theContracting State in which the property in question is situated. The term shall in
anycase include propertyaccessory to immovable property, livestock and equipment used inagriculture and forestry, rights towhich the provisions of general law respecting landedproperty apply, usufruct of immovable property and rights to variable or fixed paymentsas consideration for the working of, or the right to work,mineral deposits, sources and other natural resources. Ships, boats and aircraft shall not be regarded as immovableproperty.

3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting, or usein any other form of immovable property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independenpersonal services.

Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise maybe taxed in the other state but only so
muchof them as is attributable to that permanent establishment.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting States carries on business in the other contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which itmight be expected to make if it were a distinct and separate enterprise engaged in the same orsimilar activities under the same or similar conditions and dealing wholly independently with theenterprise of which it is a permanent establishment.

3. (a) in the determination of the profits of a permanent establishment, there shall be allowed asdeductions, expenses of the enterprise which are incurred for the
purposeof the permanentestablishment, including only those executive and
generaladministrative expenses incurred,whether in the state in which the permanentestablishment is situated or elsewhere which areallowed under the provisions of thedomestic law of the Contracting State in which the permanent establishment issituated.

(b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way
of royalties, fees or other similar payments, in return for the use of patents or other rights, or by way of commission, for specific services performed or for management,
or,except in the case of a banking enterprise, by way of interest on monies lent to
the permanent establishment. Likewise, no account shall be taken in the determination ofthe profits of a permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to thehead officeof the enterprise or any of its other offices, by way
of royalties, fees, orother similar payments inreturn for the use of patents or other rights, or by way of commission for specific servicesperformed or for management,
or except in the case ofa banking enterprise by way of intereston monies lent to
the head office of theenterprise or any of its other offices.

4. In so far as it has been customary in a Contracting state to determine the profits to be attributed toa permanent establishment on the basis of an apportionment of the total profits of the enterprise toits various parts, nothing in paragraph 2 shall preclude that Contracting State from determining theprofits to be taxed by such an apportionment as may be customary, the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained inthis Article.

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by thatpermanent establishment of goods or merchandise for the enterprise.

6. For the purpose of the preceding paragraphs, the profits to be attributed to the permanentestablishment shall be determined by the same method year by year unless there is good andsufficient reason to the contrary
.
7. Where profits include items of income which are dealt with separately in other Articles of thisAgreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8

AIR TRANSPORT

1. Profits derived by an enterprise of a Contracting State from the operation of aircraft in international traffic shall be taxable only in that State.

2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool,
a jointbusiness or an international operating agency.

3. For the purposes of this Article, interest on funds connected with the operation of
aircraftininternational traffic shall be regarded as income/profits derived form the operation of such aircraftand the provisions of Article 11 shall not apply in relation to such interest.

4. The term "operation of aircraft" shall mean business of transportation by air of passengers, mail,livestock or goods carried on by the owners of lessees or charterers
of aircraft, including the sale oftickets for such transportation on behalf of other enterprises, the incidental lease of aircraft and anyother activity directly connected
with such transportation.

Article 9

ASSOCIATED ENTERPRISES

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a contracting State and an enterprise of the other Contracting State.

And in either case conditions are made or imposed between the two enterprises in theircommercial or financial relations which differ from those which wouldbe made
between independent enterprises, then any profits which would, but for those conditions, have accrued toone of the enterprises, but by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

Article 10

DIVIDENDS

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the company paying
the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed :

(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
company which owns at least ten per cent of the shares of the company paying
the dividends

(b) 15 per cent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3. The term "dividends" as used in this Article means income from shares or other rights,
not beingdebt - claims, participating in profits, as well as income from other corporate rights which is subjectedto the same taxation treatment as income form shares by the laws of the state of which the companymaking the distribution is a resident.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being aresident of a contracting state, carries on business in the other Contracting State of which thecompany paying the dividends is a resident, through a permanent establishment situated therein orperforms in that other State independent personal services from a fixed base situated therein,andthe holding in respect of which the dividends are paid is effectively connected with such permanent establishment of fixed base. In such case, the provision of Article 7, or Article 13, as the case may be
shallapply.

5. Where a company which is a resident of a Contracting State derives profits or income from the other contracting state, that other state may not impose any tax on the dividends paid by the company except in so far as such dividends are paid to a resident of that other state or in so far as the holdingin respect of which the dividends are paid is effectively connected with a permanent establishment ora fixed base situated in that other State, not subject the company's undistributed profits to a tax onthe company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Article 11

INTEREST

1. Interest arising in Contracting State and paid to a resident of the other contracting
state may be taxed in that other state.
2. However, such interest may also be taxed in the Contracting state in which it arises
and according tothe laws of that state, but if the recipient is the beneficial owner of
the interest the tax so charged shall not exceed 15 per cent of the gross amount of
the interest.Provided, however, that where the interest is paid to a bank carrying on bonfide banking business,which is resident of the other Contracting State and is the beneficial owner of the interest, the taxcharged in the contracting states in which the interest arises shall not exceed 10 percent of the grossamount of interest.

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting state shall be exemptfrom tax in that State provided it is derived and beneficially owned by :

(i) the government, a political sub-division or a local authority of the other Contracting State; or
(ii) the Central Bank of the other Contracting State.

4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate
in the debtor's income from bonds or debentures. Penalty charges for late payment
shall not be regarded as interest for the purpose of this article.

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being aresident of a Contracting state, carries on business in the other contracting State in which the interestarises, through a permanent establishment situated therein, or performs in that other Stateindependent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest in paid
is effectively connected with such permanent establishment or fixed base. Insuch case, the provisions of Article 7 or Article 13, as the case may be,shall apply.

6. Interest shall be deemed to arise in a contracting state when the payer is that Contracting stateitself, a political sub-division, a local authority or a resident of that
state. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base,
then such interest shall be deemed to arise in the Contracting State in which the permanentestablishment or fixed base is situated.

7. Where, by reasons of a special relationship between the payer and the beneficial
owneror betweenboth of them and some other person, the amount of the interest, having regard to the debt-claim forwhich it is paid, exceeds the amount which would havebeen agreed upon by the payer and thebeneficial owner in the absence of such relationship, the provisions of this Article shall apply to thelast mentioned amount. In such case, the excess part of the payments shall remain taxableaccording to the laws of each contracting state, due regard being had to the other provisions of this Agreement.


Article 12

ROYALTIES

1. Royalties arising in a Contracting state and paid to a resident of the other Contracting state may be taxed in that other State.

2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the tax socharged shall not exceed 15 per cent of the gross amount of the royalties.

3. The term "royalties" as used in this article means payments of any kind received as a considerationfor the use of, or the right to use, any copyright of literary, artistic or scientific work, includingcinematograph films, or films, or tapes used for radio, or television broadcasting,any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use,industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other contracting State in which the royalties arise, through a permanent establishment, situated therein, or performs in that otherstate independent personal services from a fixed base situated therein, and the right or property inrespect of which the royalties
are paid is effectively connected with such permanent establishmentor fixed base. In suchcase, the provisions of Article 7 or Article 13, as the case may be, shall apply.

5. Royalties shall be deemed to arise in a Contracting state when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then suchroyalties shall be deemed to arise in the state in which the permanent establishment or fixed base is situated.

6. Where, by reason of special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of royalties, having
regard to the use, right orinformation for which they are paid, exceeds the amount which wouldhave been agreed upon by thepayer and the beneficial owner in the absence of such relationship, the provisions of this Article shallapply only to the last mentioned amount.In such case, the excess part of the payments shall remaintaxable according to the laws of each Contracting State, due regard being had to the other provisionsof thisAgreement.

Article 13

INDEPENDENT PERSONAL SERVICES

1. Income derived by a resident of a Contracting State is respect of professional services
orotherindependent activities of a similar character shall be taxable only in that state except in the followingcircumstances when such income may also be taxed in the other Contracting State:

(a) if he has a fixed base regularly available to him in the other Contracting state for
the purposeof performing his activities; in that case, only so much of the income as is attributable to thatfixed base may be taxed in that other Contracting State; or
(b) if his stay in the other Contracting state is for a period or periods amounting to or exceeding inthe aggregate 183 days in the relevant "previous year" or "year of income" as the case maybe; in that case only so much of the income as is derived from his activities performed in thatother State may be taxed in that other State.

2. The term "professional services" includes independent scientific, literary, artistic, educational orteaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers,architects, dentists and accountants.

Article 14

DEPENDENT PERSONAL SERVICES

1. Subject to the provisions of Articles 15, 16, 17, 18, 19, and 20, salaries, wages and
othersimilar remuneration derived by a resident of a Contracting State in respect of an employment shall betaxable only in that state unless the employment is exercised, in the other contracting state. If theemployment is so exercised such remuneration as is derived there from may be taxed in that otherState.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a contractingState in respect of an employment exercised in the other Contracting State shall be taxable only inthe first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant "previous year" or "year of income", as the case may be,and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the otherState;
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in
respect of anemployment exercised aboard an aircraft operated in international traffic
by an enterprise of acontracting State shall be taxable only in that State.

Article 15

DIRECTORS' FEES

Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the Board of Directors of a company which is a resident of the
other Contracting State may be taxed in that other State.

Article 16

INCOME EARNED BY ENTERTAINERS AND ATHLETES

1. Notwithstanding the provisions of Articles 13 and 14, income derived by a resident of a ContractingState as an entertainer such as a theater, motion picture, radio or television artist or musician or asan athlete, from his personal activities as such exercised in the other Contracting State may be taxedin that other State.

2. While income in respect of personal activities exercised by an entertainer or an athlete
in his capacityas such accrues not to the entertainer or an athlete himself but to
anotherperson, that income may,notwithstanding the provisions of Articles 7, 13 and
14,be taxed in the Contracting State in which theactivities of the entertainer or
athlete areexercised.

3. Notwithstanding the provisions of paragraph 1, income derived by an entertainer or an athlete. Who is a resident of a Contracting State from his personal activities as such exercised in the otherContracting State, shall be taxable only in the first-mentioned contracting state, if the activities in theother Contracting State are supported wholly or substantially from the public funds of thefirstmentioned Contracting State, including any of its political sub-divisions or local authorities.

4. Notwithstanding the provisions of paragraph 2 and Articles 7, 13 and 14, where income
in respect ofpersonal activities exercised by an entertainer or an athlete in his capacity as such in a ContractingState accrues not to the entertainer or athlete himself but to another person, that income shall bytaxable only in the other Contracting State, if that other person is supported wholly or substantiallyfrom the public funds of that other state, including any of its political sub-division or local authorities.

Article 17

REMUNERATION AND PENSIONS IN RESPECT OF GOVERNMENT SERVICE

1. (a) Remuneration, other than a pension, paid by a Contracting State or a political sub-division or alocal authority there of to an individual in respect of services rendered to that State orsub-division or authority shall be taxable only in that
State.
(b)However, such remuneration shall be taxable only in the other Contracting State if
theservicesare rendered in that State and the individual is a resident of that State who :

(i) is a national of that State, or
(ii) did not become a resident of that State solely for the purpose of rendering the services.

2. (a) Any pension paid by, or out of funds created by a Contracting State or a political
sub-division ora local authority there of to an individual in respect of services rendered tothat State orsub-division or authority shall be taxable only in that
State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is aresident of, and a national of that other State.

3. The provisions of Articles 14, 15 and 16 shall apply to remuneration and pensions in respect ofservices rendered in connection with a business carried on by a Contracting State or a politicalsub-division or a local authority thereof.

Article 18

NON- GOVERNMENT PENSIONS AND ANNUITIES

1. Any pension, other than a pension referred to in Article 17, or any annuity derived by a resident of aContracting State from sources within the other Contracting State may be taxed only in thefirst-mentioned Contracting State.

2. The term "pension" means a periodic payment made in consideration of past services or by way of compensation for injuries received in the course of performance of services.

3. The term "annuity" means a stated sum payable periodically at stated times during life
or during a specified or ascertainable period of time, under an obligation to make the payments in return foradequate and full consideration in money or money's worth.

Article 19

PAYMENTS RECEIVED BY STUDENTS AND APPRENTICES

1. A student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in
thatother State solelyfor the purpose of his education or training, shall be exempt
fromtax inthat other State on:

(a) Payments made to him by persons residing outside that other State for the
purposesof his maintenance, education or training; and
(b) Remuneration form employment in that other State, in an amount not exceeding
Rs.18,000(Indian currency) or its equivalent in Nepalese currency during any "previousyear" or the "yearof income", as the case may be, provided that such employment isdirectly related to hisstudies or is undertaken for the purpose of his maintenance.

2. The benefits of this Article shall extend only for such period of time as may be
reasonable orcustomarily required to complete the education or training undertaken,
but in no event shall anyindividual have the benefits of this Article for more than three consecutive years from the date of hisfirst arrival in that other Contracting State.

Article 20

PAYMENTS RECEIVED BY PROFESSORS, TEACHERS AND RESEARCH SCHOLARS

1. A professor or teacher who is or was a resident of one of the Contracting State immediately beforevisiting the other Contracting State for the purpose of teaching or engaging in research, or both, at auniversity, college, school or other approved institution in that other Contracting State shall beexempt form tax in that other State
onany remuneration for such teaching or research for a periodnot exceeding two
yearsfrom the date of his arrival in that other State.

2. This article shall not apply to income from research if such research is undertaken primarily for theprivate benefit of a specific person or persons.

3. For the purposes of this Article and Article 19, an individual shall be deemed to be a resident of aContracting State if he is a resident in that Contracting State in the "previous year" or the "year ofincome", as the case may be, in which he visits the
otherContracting State or in the immediatelypreceding "previous year" or the "year
of income."

4. For the purposes of paragraph 1, "approved institution" means an institution which has beenapproved in this regard by the competent authority of the concerned Contracting State.

Article 21

OTHER INCOME

1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State,wherever arising, which are not expressly dealt with in the foregoing articles of
thisAgreement, shallbe taxable only in that Contracting State.

2. The provisions of paragraph 1 shall not apply to income, other than income form immovable property as defined in paragraph 2 of article 6, if the recipient of such
income, being a resident of aContracting State, carries on business in the other Contracting State through a permanentestablishment situated therein, or performs in that otherState independent personal services from afixed base situated therein, and the right or property in respect of which the income is paid iseffectively connected with suchpermanent establishment of fixed base. In such case, the provisionsof Article 7 or Article13, as the case may be, shall apply.

CHAPTER IV

METHOD IF ELIMINATION IF DOUBLE TAXATION

Article 22

ELIMINATION OF DOUBLE TAXATION

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

2. Subject to the provisions of the law of Nepal regarding the allowance as a credit
againstNepal's tax of tax payable in a territory outside Nepal (which shall not affect the generalprinciple hereof) Indiantax payable under the law of India and in accordance with the provisions of this Agreement, whetherdirectly or by deduction, on income from sources within India shall be allowed as a credit against anyNepal tax computed by reference tothe same items of income by reference to which the Indian
tax iscomputed.

3. For the purpose of the credit referred to in paragraph (2), the term "Indian tax payable" shall bedeemed to include any amount by which tax has been reduced by the special incentive measures under-

(i) sections 10 (4), 10 (4A), 10 (6) (viia), 10 (15) IV, 10 (28), 10A, 32A, 33A, 80HH, 80HHA, 80-I"and 80-L of the Indian Income Tax Act , 1961 (43 of 1961), and
(ii)any other provision which may subsequently be enacted granting a reduction of tax which thecompetent authorities of the Contracting State agree to be for the purposes of economic development.

4. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax payable in a territory outside India (which shall not affect the general principle here of) Nepal taxpayable under the law of Nepal, so however, that where
suchresident is a company by which surtax ispayable in India, the credit aforesaid shall be allowed in the first instance against income tax payableby the company in India, and asto the balance, if any, against surtax payable by it in India.

5. For the purpose of paragraph (4) of this Article, the term "Nepal tax payable" shall be deemed to include any amount which would have been payable as Nepal tax for any
yearbut for an exemption or education of tax granted for that year or any part thereof
under :
(a) sub-section (2) of Section 42 of the Nepal Income-tax Act, 2031 (1974), so far as they were inforce on, and have not been modified since, the date of the signature
of this agreement, orhave been modified only in minor respects so as not to affect theirgeneral character; or
(b) any other provisions which may subsequently be made granting an exemption or reduction oftax which is agreed by the competent authorities to be of a substantially similar character, if ithas not been modified thereafter or has been modified only in minor respects so as not toaffect its general character.

6. Where under this Agreement a resident of a Contracting State is exempt from tax in
thatContractingState in respect of income Contracting State may, in calculating tax on the remaining income of thatperson, apply the rate of tax which would have been applicableif the income exempted from tax inaccordance with this Agreement had not been soexempted.

CHAPTER V

SPECIAL PROVISIONS

Article 23

NON-DISCRIMINATION

1. The nationals of a Contracting State shall not be subjected in the other Contracting
Stateto any taxation or any requirement connected therewith which is to are or more burdensome than thetaxation and connected requirement to which nationals of that other State in the same circumstancesare or may be subjected.

2. The taxation on a permanent establishment which an enterprise of a contracting State has in the other contracting State shall not be less favorably levied in that other State than the taxation leviedon enterprises of that other State carrying on the same
activitiesin the same circumstances.

3. Nothing contained in this article shall be construed as obliging a Contracting State to grant to persons not resident in that State any persons allowances, relief's, reduction and deductions fortaxation purposes which are by law available only to persons who
areso resident.

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or
partlyowned or Controlled, directly or indirectly, by one of more resents of the other Contracting State, shall not besubjected in the first-mentioned Contracting State to
anytaxation or any requirement connectedtherewith which is other or more
burdensome that the taxation and connected requirements to whichother similar enterprises of thatfirst-mentioned State are or may by subjected in the samecircumstances.

5. In this article, the term "taxation" means taxes which are the subject of this
Agreement.

Article 24

MUTUAL AGREEMENT PROCEDURE

1. Where a resident of Contracting State considers that the actions of one or both of the Contracting States or will result for him in taxation not in accordance with this
Agreementhe may, notwithstandingthe remedies provided by the national laws of
thoseStates,present his case to the competentauthority of the Contracting State of which heis aresident. This case notice of the action which givesrise to taxation not in accordance with the Agreement.

2. The competent authority shall andeavour, if the objection appears to it to be justified
and if it is not itself able to arrive at an appropriate solution, to resolve the care by mutual agreement with the competent authority of the other Contracting State, with a view tothe avoidance of taxation not in accordance with the Agreement. Any
agreementreachedshall be implemented notwithstanding anylimits in the national
lawsof the ContractingStates.

3. The competent authorities of the Contracting States shall endeavour to resolve by
mutual agreement any difficulties or doubts arising as to the interpretation or
applicationof theAgreement. They may also consult together for the elimination of double taxation in cases not provided for in theAgreement.

4. The competent authorities o-the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to representatives of the competent authorities of the Contracting States.

Article 25

EXCHANGE OF INFORMATION

1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of the Agreement
or of the domestic lawsof the Contracting States concerning taxes covered by the Agreement, in so far as the taxationthereunder is not contrary to the Agreement, in particular for the prevention of fraud or evasion ofsuch taxes. Any information received by a Contracting State shall be treated as secret in the samemanner as information obtained under the domestic laws of that State. However, if the information isoriginally regarded as secret in the transmitting State, it shall be disclosed only to persons orauthorities (including courts and administrative bodies) involved in the assessment or collection of,the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxeswhich are the subject of the Agreement. Such persons
or authorities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial secessions,The competent
authoritiesshall, through consultation, develop appropriate conditions, methods andtechniquesconcerning the matters in respect of which such exchange of information shall be made,including, where appropriate, exchange of information regarding tax avoidance.

2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases or both. The competent authorities of the Contracting States shall agree form time to time on the list of the information or documents which shall be furnished on a routinebasis.

3. In no case shall the provisions of paragraph 1 be construes so as to impose on a Contracting Statethe obligation.

(a) to carry out administrative measures at variance with the laws or administrative practice of thator of the other Contracting State;
(b) to supply information or documents which are not obtainable under the laws of in the normalcourse of the administration of that or of the other Contracting State;
(c) to supply information or documents which would disclose eny any trade, business, industrial,commercial or professional secret or trade process or information the disclosure of which couldbe contrary to public policy.

CHAPTER VI

FINAL PROVISIONS

Article 27

ENTRY INTO FORCE

Each of the Contracting States shall notify to the other the completion of the procedure required by its law for the bringing into force of this Agreement. This Agreement shall enter into force on the date of the later of that notification and shall thereupon have effect:

(a) in India, in respect of income arising in any previous year beginning on or after the first day of April next following the calendar year in which the notice of termination
is given;
(b) in Nepal, in respect of income arising in any year of income beginning on or after
thelst day ofNepalese fiscal year next following the calendar year in which the notice oftermination is given.

IN WITNESS WHEREOF the undersigned, being duly authorised thereto, have signed the present Agreement.

Done in duplicate at KATHMANDU, on this eighteenth day of January one thousand nine hundred and eighty seven A. D. In Nepalese, Hindi and English languages. All the texts being equally authentic. In case of divergence in interpretation, the English text shall prevail.


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