New DTAA protocol slashes withholding rates, adds anti-abuse measures, and aligns with global tax norms
The Government of India, through Notification No. 69/2025 dated June 25, 2025, has formally announced the implementation of a revised Double Taxation Avoidance Agreement (DTAA) protocol with the Sultanate of Oman. The updated treaty, signed in Muscat on January 27, 2025, officially came into force on May 28, 2025, after both countries exchanged diplomatic confirmations of ratification, reported taxscan.in.
Under the new agreement, which updates the original 1997 DTAA, several significant amendments have been introduced to modernize tax cooperation and prevent treaty misuse. The revised treaty will apply in India from FY 2026–27 (beginning April 1, 2026) and in Oman from the subsequent tax year.
- Key Amendments Explained
- Purpose Redefined to Curb Abuse
The preamble of the DTAA has been updated to emphasize both the avoidance of double taxation and the prevention of tax evasion and treaty abuse, including treaty-shopping where third-country residents unfairly benefit.
- Lower Withholding Tax Rates
To promote smoother cross-border transactions, the maximum tax rates have been reduced:
- Royalties: Slashed from 15% to 10%
- Fees for Technical Services: Also reduced from 15% to 10%
This is expected to benefit Indian and Omani businesses engaging in technology transfers and service arrangements.
The revised India-Oman tax treaty introduces key reforms including reduced withholding tax rates, anti-abuse clauses, and improved transparency for financial data exchange
- Dual Residency Resolution
A new tie-breaker rule under Article 4 uses “place of effective management” and other criteria to determine tax residency for companies considered residents of both nations. If mutual agreement cannot be reached, treaty benefits may be denied.
- Anti-Avoidance Rule: Principal Purpose Test (PPT)
Article 27B introduces the Principal Purpose Test, ensuring that treaty benefits are not granted if one of the main purposes of a transaction is to obtain such benefits—unless doing so aligns with the treaty’s objective.
- Non-Discrimination Clause
A new Article 25A ensures equal tax treatment for nationals and businesses from both countries, preventing any discriminatory taxation compared to local residents in similar situations.
- Exchange of Information & Tax Collection Assistance
Revised Articles 27 and 27A now enable:
- Exchange of financial and bank data, even if not needed domestically
- Cross-border assistance in recovering tax dues
This move bolsters international transparency and enforcement.
- Legal Standing and Global Alignment
The protocol has been notified under Section 90(1) of the Income Tax Act, 1961, giving it full legal effect in India. It also aligns the India-Oman treaty with OECD’s BEPS standards, addressing global concerns on Base Erosion and Profit Shifting.
In the event of any linguistic discrepancies, the English version of the revised agreement will take precedence over Hindi and Arabic texts.
- Conclusion
With these comprehensive changes, the India-Oman DTAA protocol not only fosters smoother bilateral investment and trade but also fortifies the legal framework against tax evasion and abuse—paving the way for a more transparent and equitable tax environment.
