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 would not exceed ten percent of the gross amount of payment in case the beneficial owner of the payments was a resident of the other Contracting State.

As per the DTAA, capital gains from alienation of shares of a company would be taxable in the country where the company was a resident. The agreement also provides for tax credit for taxes paid by the residents in the other country.

An official release said that there is a provision for exchange of information in cases which are under investigation in either of the two countries. Both countries have agreed to assist each other in collection of revenue claims. There is also a provision for limitation of benefits under the DTAA to prevent misuse of the provisions of the DTAA.

The DTAA was signed on the occasion of the visit of Mexican President, Mr Felipe Calderon, who arrived on a two-day visit to India, the first by a Mexican President in two decades. Mr Calderon, who is accompanied by over 100 business leaders, met the Prime Minister, Dr Manmohan Singh and other political leaders.

Later, Mr Calderon invited Indian companies to invest in Mexico, which enjoys duty concessions in markets of US and other countries under North American Free Trade Agreement (NAFTA).

The Minister of State for External Affairs, Mr Anand Sharma said: The two countries have pledged to increase the trade to USD 5 billion a year by 2010. The bilateral trade has been increasing rapidly over the last few years, touching $1.8 billion last year. Indian exports accounted for $1.1 billion and imports $0.7 billion.