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By:

Kaustubh Kale

10 September 2024 at 11:37:15 pm

Nine Financial Tips for a Prosperous Navratri

As Navratri draws to a close, I wish you and your family happiness, prosperity, and continued success. Festivals are a time of celebration, but they also serve as a valuable reminder to reflect on our financial habits and strengthen our financial discipline. In the spirit of the nine days of Navratri, here are nine essential financial tips to help you stay on track with your financial goals and make your journey towards financial freedom smoother and more secure. Build an Emergency Fund Make...

Nine Financial Tips for a Prosperous Navratri

As Navratri draws to a close, I wish you and your family happiness, prosperity, and continued success. Festivals are a time of celebration, but they also serve as a valuable reminder to reflect on our financial habits and strengthen our financial discipline. In the spirit of the nine days of Navratri, here are nine essential financial tips to help you stay on track with your financial goals and make your journey towards financial freedom smoother and more secure. Build an Emergency Fund Make sure you have at least six months of living expenses saved in a bank fixed deposit or a debt mutual fund. This reserve will serve as your emergency fund for unforeseen situations and ensures you are prepared for any rainy days. Review Your Asset Allocation Revisit your investments to ensure they align with your goals. For short-term goals within three years, bank fixed deposits, recurring deposits, or debt mutual funds are appropriate. For long-term goals beyond three years, a diversified combination of hybrid/equity mutual funds, direct equities, and gold should be preferred. Do Sufficient SIPs Systematic Investment Plans (SIPs) are the backbone of disciplined investing. At least 25-30 percent of your in-hand monthly income should ideally be invested through SIPs in mutual funds, equities, and gold. This consistent approach will steadily build wealth over time. Make Lumpsum Investments Along with SIPs, voluntary lumpsum contributions into long-term assets whenever you have surplus funds can accelerate wealth creation. Even occasional lumpsum additions make a significant difference to the overall corpus. Increase Your SIPs Annually As your income increases, make sure your investments grow as well. Increasing your SIP amounts every year helps your wealth stay in line with inflation and your rising lifestyle needs. Increase your SIPs yearly and anchor them to at least 30 percent of your monthly income. Stay Invested Remain invested until your financial goals are achieved. Avoid redeeming investments unnecessarily. Frequent withdrawals disrupt compounding. If liquidity is required, consider taking an overdraft loan against your investments rather than breaking them prematurely. Health Insurance Safeguard your family with adequate health insurance. Opt for a minimum cover of 25 lakhs per family member with comprehensive features. Remember that relying only on employer-provided insurance is risky. Independent health insurance is essential. Term Life Insurance Protect your loved ones with a pure term life insurance policy. Ensure a cover of at least ten times your annual income, along with provisions for any outstanding loans. Stay away from mixing insurance with investments. A simple term plan is the most effective solution. Consult a Financial Advisor A full-time, well-qualified financial advisor can simplify your financial journey. Professional guidance ensures disciplined planning, correct product selection, and proper execution of your financial strategy. May this festive season bring abundance and lasting financial peace. (The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal. He could be reached on 9833133605.)

DTAA vis-à-vis Domestic Tax Law: A Critical Analysis

Jan 28
3 min read

In India, tax treaties are not mere guidelines—they form part of domestic law and can override statutory provisions when more beneficial to the taxpayer.

In an era of globalised trade, digital services and multinational business models, conflicts between domestic tax laws and international tax treaties have become increasingly frequent. Double Taxation Avoidance Agreements (DTAAs) are intended to eliminate double taxation, allocate taxing rights between countries and provide certainty to cross-border transactions. For India, with its extensive treaty network and growing international economic footprint, the interaction between DTAAs and the Income-tax Act, 1961, is of significant practical importance.


The Income-tax Act, 1961, expressly recognises tax treaties under Sections 90 and 91. Section 90(2) provides that where a DTAA exists, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. This provision establishes that treaty benefits prevail over domestic law when favourable, while domestic provisions continue to apply where they offer greater relief. Accordingly, DTAAs operate not as an override but as a beneficial exception to domestic tax legislation.


Treaty Supremacy

Indian courts have consistently upheld the binding nature of DTAAs. In Union of India v. Azadi Bachao Andolan, the Supreme Court affirmed that tax treaties entered into under Section 90 form part of Indian law and must be interpreted in good faith in line with international principles. The Court also recognised that legitimate tax planning within the framework of a treaty cannot be disregarded merely on suspicion of revenue loss.


This principle was reaffirmed in the Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (2021), where the Supreme Court held that payments for off-the-shelf software made to foreign suppliers did not constitute “royalty” under the applicable DTAAs. Despite a broader definition under domestic law, the more beneficial treaty provisions were held to prevail, thereby exempting such payments from withholding tax.


Income, Treaty Protection

Disputes frequently arise in relation to the characterisation of income, particularly in respect of royalties, fees for technical services and capital gains. In DIT v. New Skies Satellite BV, the Delhi High Court ruled that retrospective amendments to the Income-tax Act expanding the scope of “royalty” could not be imported into tax treaties. The judgement reinforced that treaty provisions cannot be unilaterally modified through domestic legislation.


Similarly, in Vodafone International Holdings BV v. Union of India, the Supreme Court emphasised that, in the absence of a specific charging provision under the treaty, India could not tax indirect transfers solely by applying domestic law principles.


PE, Business Profits

The taxation of business profits of foreign enterprises hinges on the existence of a Permanent Establishment (PE). In E-Funds IT Solution Inc. v. ADIT, the Supreme Court held that the mere presence of a subsidiary or outsourcing arrangement in India does not automatically constitute a PE under the DTAA. The ruling clarified that treaty thresholds must be strictly satisfied before taxing foreign business profits in India.


GAAR, Procedural Compliance

While DTAAs provide relief, they are subject to anti-abuse provisions. The introduction of General Anti-Avoidance Rules (GAAR) and India’s adoption of the OECD BEPS framework through the Multilateral Instrument (MLI) empower tax authorities to deny treaty benefits where arrangements lack commercial substance. At the same time, procedural requirements—such as furnishing a valid Tax Residency Certificate under Section 90(4)—remain mandatory under domestic law.


DTAAs and domestic tax law operate in a harmonious and complementary manner. While domestic law provides the charging and procedural framework, DTAAs offer relief from double taxation and certainty in cross-border taxation. In case of conflict, the provision more beneficial to the assessee prevails, subject to anti-avoidance safeguards. For tax professionals, a sound understanding of treaty jurisprudence and recent judicial developments is essential in navigating today’s complex international tax landscape.


(The writer is a Chartered Accountant based in Thane. Views personal.)


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