India and Lithuania on Tuesday signed an agreement for avoidance of double taxation to prevent tax evasion and exchange of banking information between the two countries.

The double taxation avoidance agreement (DTAA) provides that business profits would be taxable in the source country if the activities of an enterprise constitute a permanent establishment there, a finance ministry statement said.

“The Agreement incorporates provisions for effective exchange of information between tax authorities of the two countries in line with latest international standard, including exchange of banking information and supplying of information without recourse to domestic interest,” it said.

Lithuania is the first Baltic country with which India signed DTAA. India has entered into such agreements with about 70 countries.

The pact will provide tax stability to the residents of India and Lithuania and facilitate mutual economic cooperation between the two countries.

It will also stimulate the flow of investment, technology and services between India and Lithuania, the statement added.

The DTAA incorporates anti-abuse (limitation of benefits) provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

In its fight against the menace of black money, India has bas adopted a multi-prong strategy, including negotiation and re-negotiation of DTAAs with different countries. Besides, it is also entering into Tax Information Exchange Agreements (TIEA) with tax havens.

The India-Lithuania DTAA would enhance recourse to mutual agreement procedure to relieve double taxation in cases involving transfer pricing adjustments.

However, dividends, interest and royalties and fees for technical services income will be taxed both countries.

The low level of withholding rates of taxation for dividend, interest and royalties and fees for technical services will promote greater investments, flow of technology and technical services between the two countries, the Finance Ministry said.

From the Indian side, CBDT Chairman Prakash Chandra and from the other side Lithuanian Ambassador to India Petras Simeliunas signed the agreement and protocol, the statement added. (PTI)