What does the India–Nepal DTAA actually give you — the rates, the conditions attached to them, and what the MLI changed?
| Income | Rate | The condition attached to it | Article |
|---|---|---|---|
| Dividends | Two tiers, and this is the only genuinely two-tier dividend article in this group of south asian and asean treaties — Malaysia, Thailand and Sri Lanka all use a single flat ceiling. Art. 10(2): 'the tax so charged shall not exceed: (a) 5 per cent of the gross amount of dividends if the beneficial owner is A company which owns at least 10 per cent of the shares of the company paying the dividends; (b) 10 per cent of the gross amount of dividends in all other cases.' Both limbs are also subject to the opening condition of Art. 10(2), that the beneficial owner of the dividends is a resident of the other Contracting State. | Three cumulative conditions for the 5 per cent rate, and all three must be stated. (i) The beneficial owner must be A company — an individual, partnership, trust or fund holding 100 per cent of the payer still… | Article 10, paragraph 2(a) (5 per cent, company owning at least 10 per cent of the shares); 2(b) (10 per cent in all other cases, followed in the same sub-paragraph by the profits-of-the-company saving); 3 (definition); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2, throwing the income to Art. 7 or Art. 14); 5 (no extra-territorial taxation of dividends, no tax on undistributed profits) |
| Interest | 10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2). | The exemption is in article 11 itself, at paragraph 3 — not in a separate article and not in the Protocol. 'Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be… | Article 11, paragraph 2 (10 per cent ceiling); 3 (exemptions — (a) the two central banks, (b) generic government, (c) institutions agreed by exchange of letters); 4 (definition, expressly excluding PENALTY CHARGES FOR LATE PAYMENT); 5 (PE/fixed-base carve-out); 6 (source rule with PE-borne deeming); 7 (special-relationship excess) |
| Royalties | 15 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). This is the highest royalty ceiling in the batch — half again as much as the flat 10 per cent in the Malaysian, Thai and Sri Lankan treaties. A single flat rate: no split between equipment royalties and intellectual-property royalties, and no separate FTS rate because there is no FTS article. But the 15 per cent figure must never be quoted without protocol paragraph 2, the MFN clause — see amending_notifications. If Nepal has limited its source taxation of royalties to a lower rate, or a more restricted scope, in any treaty with a third State, that lower rate or narrower scope applies here automatically from the date the Nepal-third State instrument entered into force. The MFN protects Indian residents receiving Nepal-source royalties; it does not protect Nepalese residents receiving Indian-source royalties. | The art. 12(3) definition covers copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for television or radio broadcasting; any patent, trademark, design or… | Article 12; and Protocol paragraph 2 (MFN), paragraph 2 (15 per cent rate); 3 (definition); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2); 5(a) and 5(b) (source rules — note the textual defect in 5(a) and the fallback in 5(b)); 6 (special-relationship excess) |
| Fees for technical services | There is no fees-for-technical-services article in this treaty and no FTS rate. The Article sequence runs ... Article 11 interest, article 12 royalties, article 13 capital gains, article 14 independent personal services ... There is no Article 12A, no standalone FTS article, and no FTS limb inside Article 12 — the Art. 12(3) royalty definition is confined to payments for the use of, or the right to use, property and rights and for information concerning industrial, commercial or scientific experience, and does not reach the rendering of managerial, technical or consultancy services. This is the second treaty in this batch with no FTS article (Thailand is the other), but the consequence here is the opposite of thailand'S, because of the way Article 22 is drafted. | Because there is no FTS article, the make-available question does not arise — there is no FTS definition to carry a make-available limb. What matters is where service fees land, and on this treaty they land in… | Article None — no FTS Article exists. The relevant provisions are Article 7 (business profits), Article 5(3)(b) (service PE, more than 90 days), Article 14 (independent personal services) and Article 22 (other income), whose paragraph 3 is confined to lotteries, puzzles, races, card games, gambling and betting., paragraph Article 22, paragraphs 1 and 3 are the decisive provisions; Article 5, paragraph 3(b) is the threshold that decides the Article 7 cases |
| In force | 16 march 2012. Signed at kathmandu on 27 november 2011 in Hindi, Nepali and English, all texts equally authentic, the english text to prevail on divergence. This is A wholly new treaty, not A protocol: Art. 30(4) provides that the earlier Agreement signed at Kathmandu on 8 january 1987 (concluded with 'His Majesty's Government of Nepal') shall cease to have effect when this Agreement becomes effective — but with A savings proviso that most treaties do not have: 'provided that any action or proceeding already initiated prior to the coming into force of this agreement shall be dealt with in accordance with' the 1987 Agreement. So the 1987 treaty continues to govern proceedings already on foot at 16 March 2012. Effect under Art. 30(3): in india, income derived in any fiscal year beginning on or after the first day of April next following the calendar year of entry into force — entry into force fell in calendar 2012, so the Indian effective date is 1 april 2013 (FY 2013-14 onwards), and the notification says so in terms. In nepal, income derived in any fiscal year beginning on or after the mid-july (corresponding to the first day of the Shrawan month of the Nepalese B.S.) next following the calendar year of entry into force — the Nepalese fiscal year starts in mid-July, not on 1 January or 1 April, and any effective-date calculation must use that. Covers taxes on income only. Note A drafting point in art. 30(2): it says the Agreement enters into force 'on the date of the notifications referred to in paragraph 1', omitting the words 'the later of' that the Malaysian, Thai and Sri Lankan equivalents all carry. The notification's own recital supplies the missing sense, stating that 16 March 2012 was 'the date of the later of the notifications'. |
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| Given effect by | Notification No. 20/2012 [F. No. 503/03/2005-ftd-II], dated 12-6-2012 — issued under sub-section (1) of section 90 of the Income-tax Act 1961, notifying that all the provisions of the Agreement be given effect to in India 'with effect from the 1st day of April, 2013'. The citation line as carried in the notified text ends with an asterisk, which is editorial apparatus and not part of the instrument's own citation. No S.O. Number is given on the citation line as read. |
| Modified by the MLI | No synthesised text was found for this treaty in the source searched. |
| Principal purpose test | Yes in substance, but IT is the treaty'S own main-purpose test and not an MLI principal purposes test — it was in the instrument as originally notified in 2012 and no MLI overlay has been shown to apply. Art. 28, first sentence: a resident 'shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this agreement.' The wording is word-for-word the Malaysian Art. 28(2). Two features matter. (i) 'one of the main purposes' is the low threshold, matching the MLI standard. (ii) there is no object-and-purpose saving clause. The MLI Art. 7(1) PPT lets a taxpayer escape by establishing that granting the benefit would accord with the object and purpose of the relevant provisions; Art. 28 here offers no such escape. On its face this home-grown test is therefore harsher than the MLI standard — the same point that arises on the Malaysian treaty, and the opposite of what happened on the Sri Lankan treaty, where the 2026 substitution introduced exactly that saving. Note also that this treaty's preamble contains no beps treaty-shopping recital, so even by analogy there is little object-and-purpose material to argue from. Whether an MLI PPT now applies is not established by this source; see gaps. |
| Rate | Two tiers, and this is the only genuinely two-tier dividend article in this group of south asian and asean treaties — Malaysia, Thailand and Sri Lanka all use a single flat ceiling. Art. 10(2): 'the tax so charged shall not exceed: (a) 5 per cent of the gross amount of dividends if the beneficial owner is A company which owns at least 10 per cent of the shares of the company paying the dividends; (b) 10 per cent of the gross amount of dividends in all other cases.' Both limbs are also subject to the opening condition of Art. 10(2), that the beneficial owner of the dividends is a resident of the other Contracting State. |
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| Lower rate on a qualifying holding | 5 per cent — the lower rate, and it is the concession, not the penalty. (Contrast the treaty found in an earlier batch where the higher figure was the penalty rate and the lower one the default; here the structure is the orthodox one.) |
| The holding that unlocks it | Three cumulative conditions for the 5 per cent rate, and all three must be stated. (i) The beneficial owner must be A company — an individual, partnership, trust or fund holding 100 per cent of the payer still gets only 10 per cent. (ii) That company must own at least 10 per cent of the shares of the company paying the dividends — note 'at least 10 per cent', so exactly 10 per cent qualifies, unlike the 'more than' formulations used for the PE thresholds in this same treaty. (iii) The test is expressed as ownership of the shares, not of the voting power and not of the capital — so a holding of 10 per cent of the shares qualifies even if it carries less than 10 per cent of the votes, and conversely a high-voting low-share holding does not. There is no minimum holding period attached to the 10 per cent test — no 365-day rule, no MLI Art. 8 box — so the threshold is tested at the time the dividend is paid and a holding acquired shortly before the record date qualifies on the face of the Article. |
| Where this comes from | Article 10, paragraph 2(a) (5 per cent, company owning at least 10 per cent of the shares); 2(b) (10 per cent in all other cases, followed in the same sub-paragraph by the profits-of-the-company saving); 3 (definition); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2, throwing the income to Art. 7 or Art. 14); 5 (no extra-territorial taxation of dividends, no tax on undistributed profits) |
A typographical point with A substantive edge: the saving 'This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid' is run on at the end of sub-paragraph (b) rather than being set out as a separate closing sentence of paragraph 2. On its face it therefore reads as attaching to sub-paragraph (b) alone, though it plainly refers to 'this paragraph'. There is no underlying tax credit and no tax sparing for either State — Art. 23 gives ordinary credit only, plus exemption-with-progression. There is no MFN clause on dividends: Protocol para 2 is confined to Article 12 (Royalties).
| Rate | 10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2). |
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| Exemptions | The exemption is in article 11 itself, at paragraph 3 — not in a separate article and not in the Protocol. 'Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, provided that IT is derived and beneficially owned by' the listed persons. The double test — derived and beneficially owned — defeats nominee and conduit structures fronting for an exempt body. The order of the sub-paragraphs is reversed from the thai and sri lankan treaties, and the central banks come first. Art. 11(3)(a): '(i) in the case of india, the reserve bank of india, and (ii) in the case of nepal, the nepal rashtra bank'. That is the whole named list — two institutions, one on each side, and they are the two central banks. This is the shortest named list of any treaty in this batch: there is no Export-Import Bank on either side (both the Thai and Sri Lankan treaties name exim banks), no National Housing Bank (named in the Sri Lankan treaty), and no development finance institutions at all. Art. 11(3)(b) is the generic government limb: 'the Government, a political sub-division or a local authority of the other Contracting State'. Any political subdivision or local authority qualifies without being named. Note that it sits after the central-bank limb, not before it. Art. 11(3)(c) is the safety valve and IT is not self-executing: 'any other institution as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters.' The prescribed form — exchange of letters — matches the Sri Lankan clause, but unlike sri lanka there is no 'wholly owned by the government' capital condition. So the Nepalese safety valve is procedurally identical to Sri Lanka's but substantively wider: any institution can in principle be added, whatever its ownership, provided the competent authorities agree by exchange of letters. Until they do, an unlisted lender pays 10 per cent. |
| Where this comes from | Article 11, paragraph 2 (10 per cent ceiling); 3 (exemptions — (a) the two central banks, (b) generic government, (c) institutions agreed by exchange of letters); 4 (definition, expressly excluding PENALTY CHARGES FOR LATE PAYMENT); 5 (PE/fixed-base carve-out); 6 (source rule with PE-borne deeming); 7 (special-relationship excess) |
The Art. 11(4) definition is the plain one — debt-claims of every kind, government securities, bonds and debentures including premiums and prizes — with no renvoi limb of the kind the Thai treaty carries. Penalty charges for late payment are expressly excluded from Art. 11, and on this treaty that exclusion is unusually favourable to the taxpayer: they fall to Art. 22 (Other Income), whose paragraph 3 is not a general source-taxation rule (see capital_gains_shares.conditions and practitioner_notes), so late-payment penalties end up taxable only in the recipient's State of residence. Under the Malaysian, Thai and Sri Lankan treaties the same receipts are left fully taxable at source with no ceiling. Note the source-rule asymmetry within this treaty: Art. 11(6) sources interest only 'when the payer is a resident of that State', while Art. 12(5) attempts a wider formula for royalties and adds a place-of-use fallback in 12(5)(b).
| Rate | 15 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). This is the highest royalty ceiling in the batch — half again as much as the flat 10 per cent in the Malaysian, Thai and Sri Lankan treaties. A single flat rate: no split between equipment royalties and intellectual-property royalties, and no separate FTS rate because there is no FTS article. But the 15 per cent figure must never be quoted without protocol paragraph 2, the MFN clause — see amending_notifications. If Nepal has limited its source taxation of royalties to a lower rate, or a more restricted scope, in any treaty with a third State, that lower rate or narrower scope applies here automatically from the date the Nepal-third State instrument entered into force. The MFN protects Indian residents receiving Nepal-source royalties; it does not protect Nepalese residents receiving Indian-source royalties. |
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| Where this comes from | Article 12; and Protocol paragraph 2 (MFN), paragraph 2 (15 per cent rate); 3 (definition); 4 (PE/fixed-base carve-out disapplying paragraphs 1 AND 2); 5(a) and 5(b) (source rules — note the textual defect in 5(a) and the fallback in 5(b)); 6 (special-relationship excess) |
The art. 12(3) definition covers copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for television or radio broadcasting; any patent, trademark, design or model, plan, secret formula or process; the use of, or the right to use, industrial, commercial or scientific equipment (equipment rental is a royalty at the full 15 per cent); and information concerning industrial, commercial or scientific experience. It does not extend to the rendering of services, so it cannot be pressed into service as a substitute for the missing FTS article. The source rule in art. 12(5)(a) carries an evident textual defect in the notified text and should not be quoted without it being noted: it reads 'Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State [itself, A political sub-division, A local authority, or A resident of that state].' The square-bracketed words are the wider payer formula used in the Thai and Sri Lankan treaties ('when the payer is that State itself, a political sub-division, a local authority, or a resident of that State'), left standing alongside the narrower one rather than in place of it. Which formula governs — the narrow resident-only test, or the wider one including the State and its subdivisions — is not resolved on the face of the text. Art. 12(5)(b) is A place-of-use fallback: where under 5(a) royalties do not arise in either Contracting State, and they relate to the use of or right to use the right or property in one of the Contracting States, they are deemed to arise in that State. Note that, unlike the Sri Lankan Art. 12(5)(b), it has no place-of-performance limb — because there is no FTS to source.
| Rate | There is no fees-for-technical-services article in this treaty and no FTS rate. The Article sequence runs ... Article 11 interest, article 12 royalties, article 13 capital gains, article 14 independent personal services ... There is no Article 12A, no standalone FTS article, and no FTS limb inside Article 12 — the Art. 12(3) royalty definition is confined to payments for the use of, or the right to use, property and rights and for information concerning industrial, commercial or scientific experience, and does not reach the rendering of managerial, technical or consultancy services. This is the second treaty in this batch with no FTS article (Thailand is the other), but the consequence here is the opposite of thailand'S, because of the way Article 22 is drafted. |
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| Where this comes from | Article None — no FTS Article exists. The relevant provisions are Article 7 (business profits), Article 5(3)(b) (service PE, more than 90 days), Article 14 (independent personal services) and Article 22 (other income), whose paragraph 3 is confined to lotteries, puzzles, races, card games, gambling and betting., paragraph Article 22, paragraphs 1 and 3 are the decisive provisions; Article 5, paragraph 3(b) is the threshold that decides the Article 7 cases |
Because there is no FTS article, the make-available question does not arise — there is no FTS definition to carry a make-available limb. What matters is where service fees land, and on this treaty they land in A notably taxpayer-favourable place. A payment for technical, managerial or consultancy services by an Indian payer to a Nepalese resident is not royalties, so it must be characterised as: (i) business profits under Art. 7, taxable in India only if the Nepalese enterprise has a permanent establishment in India — which for services means crossing the Art. 5(3)(b) service PE threshold of more than 90 days in any 12-month period for the same or connected project; or (ii) where the recipient is an individual performing professional or similar independent services, independent personal services under Art. 14, taxable in India only on a fixed base regularly available or a stay amounting to or exceeding 183 days in any period of 12 months; or (iii) failing both, other income under Art. 22 — and art. 22 on this treaty is A residence-only article for everything except gambling. This is the single most consequential difference between the Nepal treaty and the other three South Asian and asean treaties in this batch. Art. 22(1) gives residence-only taxation; Art. 22(2) is the ordinary PE/fixed-base carve-out; and Art. 22(3) — which in the Malaysian, Thai and Sri Lankan treaties is a general source-taxation override reading 'items of income ... Not dealt with in the foregoing Articles and arising in the other Contracting State may also be taxed in that other State' — is not A general override here at all. It reads: 'Notwithstanding the provisions of paragraph 1, if a resident of a Contracting State derives income from sources within the other Contracting Sate in form of lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any nature whatsoever, such income may be taxed in the other Contracting State.' the source-state override is confined to winnings. Everything else that falls outside Articles 6 to 21 stays with Art. 22(1) and is taxable only in the recipient's State of residence. The practical result: a Nepalese service provider with no Indian PE and no Art. 14 exposure has, on the face of this treaty, no indian tax liability on service fees at all — not a 10 per cent gross charge as under Malaysia or Sri Lanka, and not the uncapped domestic-law charge that Art. 22(3) would leave in place under the Thai treaty.
| Treatment | Source-state taxation of share gains is fully preserved, in two paragraphs. Art. 13(4): 'Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.' Art. 13(5): 'Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State.' All gains on shares in an Indian company are therefore taxable in India, whatever the asset composition, whatever the size of the holding, and whenever the shares were acquired. |
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| Grandfathering | None. No grandfathering date, no acquisition-date test, no disposal-date test, no transitional window, no reduced-rate period anywhere in Article 13. This treaty never conferred a share-gains exemption, so there was nothing to grandfather. |
| Conditions | (i) art. 13(4) uses the vague word 'principally' with no protocol gloss supplying A percentage — the same position as Thailand and Sri Lanka, and unlike Malaysia (which writes 'more than 50 per cent' into the Article). There is no look-back period and no stated testing date. (ii) Art. 13(4) is framed by reference to where the immovable property is situated, not where the company is resident, so it can reach shares in a company resident in neither State; Art. 13(5) by contrast is confined to shares 'in a company which is a resident of a Contracting State'. (iii) the residual paragraph is the orthodox residence-only one: Art. 13(6) provides that gains on any other property 'shall be taxable only in the contracting state of which the alienator is A resident'. So interests in partnerships and other non-share entities, and gains on shares of third-country companies not caught by para 4, fall to residence-only taxation. This follows Malaysia and Sri Lanka and differs from Thailand, whose Art. 13(6) leaves the residual class to both States' domestic law. (iv) Art. 13(3) gives exclusive residence taxation for ships and aircraft operated in international traffic and movable property pertaining to their operation. (v) Art. 13(1) refers to immovable property 'referred to in Article 6' at large (contrast Sri Lanka, which narrows it to Art. 6(2)). (vi) There is no MFN clause on capital gains — Protocol para 2 is confined to Article 12. |
| Where this comes from | Article 13, paragraph 1 (immovable property); 2 (PE/fixed-base movable property); 3 (ships and aircraft, residence only); 4 (shares of a company whose property consists directly or indirectly PRINCIPALLY of immovable property); 5 (all other shares in a company resident of a Contracting State); 6 (residual — residence only) |
| Construction or installation PE | Not expressed in months — IT is 183 days. Art. 5(3)(a): 'A building site or construction, installation or assembly project or supervisory activities in connection therewith but only if such site, project or activities last more than 183 days.' Supervisory activities sit inside the same threshold rather than being given one of their own. Qualifiers: more than 183 days, so exactly 183 does not create a PE; and note that, as in the Sri Lankan treaty and unlike the Thai one, sub-paragraph (a) says 'last more than 183 days' with no aggregation-of-periods language and no stated reference period, while sub-paragraph (b) immediately below uses both. There is no drilling-rig limb (the Sri Lankan treaty has one), no contract-splitting rule and no anti-fragmentation rule. |
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| Service PE | 90 days within any 12-month period — Art. 5(3)(b): 'The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 90 days within any 12-month period.' Qualifiers: more than 90 (not 90 or more); aggregated across periods, so intermittent visits add up; confined to the same or connected project; measured over a rolling twelve months, not the fiscal year. This threshold is the whole treaty for service income and IT is the only gate india has. Because there is no FTS article and because Art. 22(3) is confined to gambling winnings, a Nepalese enterprise that stays below 90 days pays no Indian tax on its service fees at all. Compare Sri Lanka, where the same 90-day figure merely switches the basis of a charge that exists anyway. |
| Agency PE | Yes — Art. 5(5), with three limbs: (a) has and habitually exercises an authority to conclude contracts in the name of the enterprise, subject to the Art. 5(4) carve-out; (b) has no such authority but habitually maintains a stock of goods or merchandise from which he regularly delivers on behalf of the enterprise; (c) habitually secures orders in the first-mentioned State wholly or almost wholly for the enterprise itself. Limb (c) here stops at 'the enterprise itself' — it is the narrow form used in the Malaysian and Thai treaties, not the group-wide form used in the Sri Lankan treaty, which extends to enterprises controlling, controlled by, or under common control with the enterprise. Splitting an agent's mandate across group companies therefore defeats limb (c) here in a way it would not under the Sri Lankan treaty. Art. 5(6) adds an insurance PE (except in regard to re-insurance) for collecting premiums or insuring risks through a non-independent person. Art. 5(7) protects independent agents but withdraws that protection where the agent's activities are 'devoted wholly or almost wholly on behalf of that enterprise' — a single exclusivity test, with no additional non-arm's-length condition of the kind the Malaysian treaty requires cumulatively. |
| Where this comes from | Article 5 |
Art. 5(2) includes 'a sales outlet' (f), 'a warehouse in relation to a person providing storage facilities for others' (g) and 'a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on' (h). Art. 5(3) is drafted as an inclusive extension — 'The term permanent establishment also encompasses' — not as a proviso limiting Art. 5(1), so the fixed-place test operates independently of the day thresholds. Art. 5(4) is the original pre-beps preparatory-and-auxiliary list, with (a), (b) and (c) as standalone exclusions not themselves subject to a preparatory-or-auxiliary condition. Art. 5(8) is the standard control-is-not-PE saving. Unlike the sri lankan treaty there is no protocol paragraph restricting profit attribution — no anti-force-of-attraction rule and no express offshore-supply protection; attribution is governed by Article 7 alone.
| LOB | Article 28 is headed 'limitation of benefits' and is A single unnumbered paragraph of two sentences. In full: 'A resident of a Contracting State shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this Agreement. The case of legal entities not having bona fide business activities shall be covered by the provisions of this Article.' There is no objective limitation-of-benefits code of the Sri Lankan kind: no qualified-person gateway, no listed-company test, no ownership test, no base-erosion proviso, no active-trade-or-business relief and no competent-authority relief. What is also absent is worth recording: unlike Malaysia's Art. 28(1) and unlike the whole of Thailand's Art. 27, this article contains no express domestic-law saving — there are no words preserving 'the provisions of its domestic law and measures concerning tax avoidance or evasion, whether or not described as such'. India's ability to apply GAAR and the judicial anti-avoidance doctrines to a Nepalese claimant therefore rests on general principles and on section 90 of the Income-tax Act rather than on any express treaty term. The second sentence — the bona fide business activities test — has no threshold, no safe harbour and no listed-company or active-trade exception, and it operates independently of the purpose test in the first sentence. |
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| PPT | Yes in substance, but IT is the treaty'S own main-purpose test and not an MLI principal purposes test — it was in the instrument as originally notified in 2012 and no MLI overlay has been shown to apply. Art. 28, first sentence: a resident 'shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this agreement.' The wording is word-for-word the Malaysian Art. 28(2). Two features matter. (i) 'one of the main purposes' is the low threshold, matching the MLI standard. (ii) there is no object-and-purpose saving clause. The MLI Art. 7(1) PPT lets a taxpayer escape by establishing that granting the benefit would accord with the object and purpose of the relevant provisions; Art. 28 here offers no such escape. On its face this home-grown test is therefore harsher than the MLI standard — the same point that arises on the Malaysian treaty, and the opposite of what happened on the Sri Lankan treaty, where the 2026 substitution introduced exactly that saving. Note also that this treaty's preamble contains no beps treaty-shopping recital, so even by analogy there is little object-and-purpose material to argue from. Whether an MLI PPT now applies is not established by this source; see gaps. |
| Subject to tax | No subject-to-tax or liable-to-tax condition is attached to any distributive article. The residence article carries the ordinary liable-to-tax formulation: Art. 4(1) defines a resident as 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', expressly including the State and any political sub-division or local authority. Note what is not listed: place of incorporation is not a connecting factor here, though it is in both the Thai and Sri Lankan Art. 4(1). The second sentence excludes 'any person who is liable to tax in that State in respect only of income from sources in that State', and — as with Thailand and Sri Lanka, and unlike Malaysia — there is no protocol paragraph preserving territorial-system residents. The corporate tie-breaker in Art. 4(3) is place of effective management with a mutual-agreement fallback, and it has not been replaced by any competent-authority rule so far as this source shows. |
| Where this comes from | Article 28 (Limitation of Benefits — a single unnumbered paragraph of two sentences); Article 4(1) (residence, including the source-only exclusion) |
No Synthesised Text for Nepal has been identified from the sources used here. Nor does the Comprehensive Agreement text carry any amendment marker: unlike Sri Lanka, where the preamble and Art. 28(6) appear in the notified text as provisions substituted by a 2026 notification, every paragraph of the nepal text is as originally notified in 2012. There is no beps preamble recital and no MLI-style principal purposes test. What this treaty does have is its own home-grown main-purpose test in Art. 28, which was there from the start. Whether the MLI in fact modifies this treaty cannot be established from this source and is recorded as a gap.
5 per cent of the gross amount of dividends if the beneficial owner is a company which owns at least 10 per cent of the shares of the company paying the dividends;
10 per cent of the gross amount of dividends in all other cases.
Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, provided that it is derived and beneficially owned by: (a) (i) in the case of India, the Reserve Bank of India, and (ii) in the case of Nepal, the Nepal Rashtra Bank
the tax so charged shall not exceed 15 per cent of the gross amount of the royalties
In respect to Article. 12 (Royalties) if under any Agreement Convention or Protocol between Nepal and a third State, Nepal limits its taxation at source on royalties to a rate lower or a scope more restricted than the rate or scope provided for in this Agreement on Royalties, then as from the date on which the relevant Nepal Agreement or Convention or protocol enters into force, the same rate of scope as provided for in that Agreement or Convention or Protocol on Royalties shall also apply under this Agreement.
Notwithstanding the provisions of paragraph 1, if a resident of a Contracting State derives income from sources within the other Contracting Sate in form of lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any nature whatsoever, such income may be taxed in the other Contracting State.
The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or connected project) within "the country for a period or periods aggregating more than 90 days within any 12-month period.
A resident of a Contracting State shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this Agreement. The case of legal entities not having bona fide business activities shall be covered by the provisions of this Article.
provided that any action or proceeding already initiated prior to the coming into force of this Agreement shall be dealt with in accordance with the Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on income signed at Kathmandu on January 8, 1987.
if the domestic law of a Contracting States is more beneficial to resident of the other Contracting State than the provision of this Agreement, then the provisions of the domestic law of the first mentioned State shall apply to the extent they are more beneficial to such a resident.