India on Friday signed a Double Taxation Avoidance Agreement (DTAA) with Colombia for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income emanating from either country. Apart from enabling close monitoring of tax evaders, the provision of the agreement will help in preventing money laundering and deal with other tax-related offences.

According to an official statement here, the DTAA, signed by Central Board of Direct Taxes (CBDT) Chairman Sudhir Chandra and Colombia's Ambassador Juan Alfredo Pinto Saavedra, provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment by way of a branch or factory in that state.

As per the provisions of the agreement, profits of a construction, assembly or installation project is to be taxed in the source state if the project continues in that state for more than six months. Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise.

Dividends, interest and royalty income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 5 per cent in the case of dividends and 10 per cent in the case of interest and royalties.

Capital gains from the sale of shares will be taxable in the country of source. More importantly, the DTAA incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards.

This includes exchange of banking information and also incorporates anti-abuse provisions to ensure that the benefits of the agreement are availed of by genuine residents of the two countries.

The agreement will provide tax stability to the residents of India and Colombia and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between the two countries, the statement said.