India on Monday entered into an agreement with Luxembourg, a member of the European Union, for the avoidance of double taxation and prevention of tax evasion.

Double Taxation Avoidance Agreement (DTAA), which also aims at promoting economic cooperation between the two countries will come into effect from the date of notification, said an official statement.

It is expected to benefit the manufacturing and airline companies of Luxembourg having linkages with India. India and Luxembourg have been discussing a DTAA for the last 10-15 years. Negotiations for the DTAA have been on for the last five years.

For India, the agreement will cover income-tax and wealth tax and surcharges, while in the case of Luxembourg it would cover the income tax on individuals, corporation tax, capital tax and the communal trade tax, said the statement.

India already has the double taxation avoidance agreements with over 70 countries.

The DTAA provides for taxation of dividend, interest, royalties and fees for technical services both in the country of residence as well as the country of source.

However, the rate of tax in the country of source shall not exceed 10 percent of the gross amount of payment in case the beneficial owner of the payments is a resident of the other Contracting State.

The Agreement was signed by Chairman, Central Board of Direct Taxes R S Mathoda and Luxembourg's Ambassador Marc Courte.