India notifies the protocol amending tax treaty with Oman

The Central Government exercising powers under Section 90(1) of Income Tax Act. 1961 (ITA) has notified  the Protocol amending the Double Taxation Avoidance Agreement (DTAA or tax treaty) between India and Oman. This Protocol was signed in Muscat on 27 January 2025 and entered into force on 28 May 2025. 

The Protocol introduces some of the key amendments to the existing India-Oman DTAA being and some of them to align with Base Erosion and Profit Shifting (BEPS) objective:

• Revision to Preamble: The Preamble is amended to emphasize the intention to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping arrangements.
• Residency provisions: Presently, where the entity (other than individuals) is a resident of both the Contracting States, then entity was deemed to be resident of contracting state where its place of effective management is situated.
  
  The provision is now amended providing that the competent authorities shall endeavor to determine the state of residency by mutual agreement.
  
  
• Associated enterprises: The provision for making corresponding adjustment for transfer pricing adjustments has been inserted. For the purpose of making such adjustment, due regard is required to be given to the other provisions of the treaty and the competent authorities may consult each other.
• Rate of taxation of Royalties and Fees for Technical Services (FTS): The rate of taxation for royalties and FTS is reduced from 15% to 10%, providing a more favorable tax treatment for cross-border transactions.
• Deletion of tax-sparing credit - The tax-sparing credit under Article 25(4) of the treaty is deleted.
• Entitlement to benefits: Anti-abuse provision is introduced to deny any benefits under the tax treaty if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of transaction or arrangements, unless it is established that grant of such benefit aligns with the object and purpose of the tax treaty.
• Non-Discrimination Clause: A new Article 25A is introduced to prevent discrimination against nationals of either Contracting State in terms of taxation or any connected requirements, ensuring that they are not subjected to more burdensome taxation than nationals of the other state.
• Assistance in collection of taxes: New provisions are introduced to allow for mutual assistance in the collection of revenue claims (including interest, penalty and collection cost).
• Other amendments: New Mutual Agreement Procedure (MAP) and exchange of information article replacing the old one; amendment in definition of taxes covered and competent authority etc.

The amendments will take effect in India for income derived in any fiscal year beginning on or after the first day of April following the Protocol's entry into force i.e. effective from tax year 2026-27. The provisions aim to eliminate double taxation while preventing tax evasion and avoidance, ensuring fair taxation practices between the two nations.

^[1] Notification No.  69/2025/F. No. 501/6/1991-FTD-II