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Over the last two years, India has been talking free trade agreements with several partners – both bilateral and regional – in a bid to boost export-oriented domestic manufacturing. India aims to achieve an export shipment target of US$450-$500 billion by FY22, up from US$291 billion in FY21. Consequently, early harvest deals and full FTAs have assumed newfound importance to an otherwise trade conservative regime.

Earlier, in 2019, India opted out of the Regional Comprehensive Economic Partnership (RCEP), a trade pact including the 10 ASEAN member countries, Australia, New Zealand, Japan, South Korea, and China. The RCEP will come into effect in 2022. Nevertheless, there is now a growing list of countries and regional blocs that are negotiating separate trade deals with India – including UK, UAE, Australia, Russia, Oman, and the Southern African Customs Union, which consists of Botswana, Lesotho, Namibia, South Africa, and Swaziland.

This position taken by India appears to indicate a preference for bilateral trade arrangements or regional trade arrangements that will not dislodge local producers and small-scale businesses, such as by way of an influx of Chinese manufactured goods or New Zealand dairy products, which was among the reasons why India ultimately chose to exit the RCEP grouping.

India's Free Trade Agreements 

India has a mixed record of engaging in free trade agreements (FTAs). Below we list the 13 FTAs that are in effect or at an important stage in their negotiations.

Afghanistan-India preferential trading agreement

The trade agreement between India and Afghanistan was signed in 2003. Under this agreement, India allowed substantial duty concessions ranging from 50 percent to 100 percent on certain products. In turn, Afghanistan allowed reciprocal concessions to Indian products, including tea, sugar, cement, and pharmaceuticals. Later, in 2011, India allowed all products of Afghanistan, excluding alcohol and tobacco, to have duty free access to the Indian market.

ASEAN-India Free Trade Area

The ASEAN-India Free Trade Area (AIFTA) was signed in 2009, resulting in one of the world’s largest FTAs. The agreement has seen tariffs eliminated for 90 percent of products traded between the two regions, including for products like palm oil, pepper, tea, and coffee.

Asia Pacific Trade Agreement

The Asia Pacific Trade Agreement (APTA), also known as the Bangkok Agreement, came into effect in 1976. Members of the agreement include Bangladesh, India, Lao, China, Mongolia, South Korea, and Sri Lanka. APTA’s key objective is to hasten economic development among the participating countries opting trade and investment liberalization measures that will contribute to intra-regional trade and economic strengthening through the coverage of merchandise goods and services.

Bhutan-India Trade Agreement

This trade agreement between the two countries was signed in 2006 for 10 years. In 2016, India and Bhutan signed a new bilateral agreement, which provides for a free trade regime between the two countries aimed at boosting the bilateral trade for mutual benefit. The agreement aims to cut down on documentation and adding additional exit and entry points for Bhutan’s trade with other countries.

India-Chile Preferential Trading Agreement

India-Chile Preferential Trade Agreement came into effect in 2007. It is aimed to promote the expansion of trade, provide fair conditions of competition for trade, removal of barriers to trade, and to the harmonious development and expansion of world trade.

India-Japan Comprehensive Economic Partnership Agreement

The India-Japan Comprehensive Economic Partnership Agreement (CEPA) was implemented in 2011, and is considered one of the most comprehensive trade agreements India has entered into with any country. The agreement removes duties on almost 90 percent products traded between the two countries. Sectors that have benefited from the lower duties include textiles, pharmaceuticals, agricultural products, tea, petrochemical and chemical products, cement, and jewellry.

India-Malaysia Comprehensive Economic Cooperation Agreement

The trade agreement between India and Malaysia was implemented in 2011 to strengthen and enhance the economic, trade, and investment cooperation between the two nations, to liberalize and promote trade in goods and services, to facilitate regional economic cooperation and integration, and to improve the efficiency and competitiveness of the manufacturing and services sectors. The agreement also includes economic cooperation between the two countries in areas such as infrastructure development, creative industries, tourism, small and micro enterprises, business facilitation, science and technology, and human resource development.

India-MERCOSUR Preferential Trading Agreement

MERCOSUR is a sub-regional trading community in Latin America, and comprises of Argentina, Brazil, Paraguay, and Uruguay. A trading agreement was signed between India and MERCOSUR came into effect in 2009. India has brought down duties on 452 items – ranging from 10 to 100 percent for items such as meat products, chemicals, raw hides and skins, leather articles, wool, cotton yarn, glass and glassware, iron and steel, machinery and equipment, optical, photographic, and cinematographic apparatus. Meanwhile, India has secured preferential access for organic chemicals, pharmaceuticals, essential oils, plastics and articles, rubber and rubber products, tools and implements, and machinery items and equipment.

India-Republic of Korea Comprehensive Economic Partnership Agreement

The comprehensive trade agreement between India and Republic of Korea (South Korea) came into effect in 2010. South Korea reduced tariff on 17 Indian products, while India reduced import tariffs on 11 items. The agreement also eases restrictions on foreign direct investments for both the countries and will provide better access for the Indian service industry such as IT, engineering, and finance in South Korea.

India-Singapore Comprehensive Economic Partnership Agreement

The trade agreement between India and Singapore was first signed in 2005, and the second review of the agreement was signed in 2018. The two countries have reduced or eliminate tariffs on several items. The trade agreement also eliminates tariff barriers, double taxation, duplicate processes and regulations, and provide unhindered access and collaboration between the financial institutions of Singapore and India.

India-Sri Lanka Free Trade Agreement

The FTA between India and Sri Lanka was enforced in 2000 and provides duty free concessions to a wide range of products traded between the two countries. With an access to duty free market, businesses in Sri Lanka can freely export more than 4,000 product lines to the Indian market.

India-Nepal Treaty of Trade

Trade agreement between India and Nepal came in effect in 1999, and has been renewed continuously in the last few years to further facilitate transit movement of Nepal’s trade with third countries by expanding transit points, simplification of procedures, electronic cargo tracking, and also enabling movement of Indian cargo through Nepali territory.

South Asian Free Trade Area

South Asian Free Trade Area (SAFTA) came into effect in 2006 with a purpose to reduce custom duties of all traded goods to zero. The member countries include Afghanistan, Bangladesh, Bhutan, India, Nepal, Sri Lanka, Pakistan, and Maldives. SAFTA reduced tariff rates to 20 percent in the first phase by 2007,  followed by zero in the second phase on annual basis till 2012, in case of India, Pakistan, and Sri Lanka. The rest of the members were given three years to reduce their tariffs to zero.

India-UAE CEPA

The pact was concluded on February 18, 2022, after just 88 days, a record time for trade negotiations. It is expected to come in force by early May after the UAE completes its constitutional and legal process to implement provisions of the pact. CEPA would benefit about US$26 billion worth of Indian products that have been subject to an import duty of five percent by the UAE.

The India-UAE CEPA will eliminate 80 percent tariffs on Indian and Emirati goods and all tariffs will be eliminated within 10 years. The pact will give the UAE zero duty access to 90 percent of India’s exports to the country. UAE commodities like aluminum, copper, and petrochemicals are set to benefit from the removal of tariffs. The CEPA will benefit India’s labor-intensive industries, such as textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering goods, pharmaceuticals and medical devices, and automobiles. The services sector segments to benefit from the pact include computer-related services, audio-visual, education, health, tourism, travel, nursing, engineering, and accountancy.

Cumulatively, over five years – the tariff liberalization and expanded market access could result in bilateral trade reaching US$100 billion and creation of one million jobs.

On the trade agreement’s negative list are sensitive items like dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparation, tobacco, petroleum waxes, coke, dyes, soaps, natural rubber, tires, footwear, processed marbles, toys, plastics, scrap of aluminum and copper, medical devices, TV pictures, auto and auto components, and all manufacturing sectors under the production-linked incentives (PLI) schemes.

India-Australia CEPA

India hopes to reach an early harvest deal with Australia by the end of March 2022. Sensitive dairy and agriculture items will be kept out of the trade deal, which will focus on items not produced in the country. An interim / early harvest deal between India and Australia will lower import duties and expand market access for a limited number of items and sectors. Australian producers are focused on encouraging market access for products not made in India or commodities where India experiences a shortfall in supply, such as pulses, grains, and oilseeds. Indian interests lie in securing market access for its textiles, leather, and gems and jewelry. Other areas expected to be impacted by the trade deal include education, clean technology, critical minerals, space, foreign trade, skills, innovation, and defense exchange.

The current list of trade arrangements that India has entered into – either in effect or under negotiation – have been tabulated below.

India’s Current Free Trade Agreements

Grouping

Number of member countries

Member countries

Type of agreement, stage of implementation

Asia-Pacific Trade Agreement (APTA)

5

Bangladesh, China, South Korea, and Sri Lanka

PTA, in effect

Bangladesh India Myanmar Sri Lanka Thailand Economic Cooperation (BIMSTEC)

7

Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and, Nepal

FTA, under negotiation

Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Agreement (FTA) negotiations

4

Bangladesh, India, Sri Lanka, and Thailand

FTA, in effect

Bilateral Trade and Investment Agreement (BTIA)

29

India and the EU (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden and the U.K.

FTA, under negotiation

Global System of Trade Preferences (GSTP)

43

Algeria, Argentina, Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba, Ecuador, Egypt, Ghana, Guinea, Guyana, India, Indonesia, Iran, Iraq, Libya, Macedonia, Malaysia, Mexico, Morocco, Mozambique, Myanmar, Nicaragua, Nigeria, North Korea, Pakistan, Peru, Philippines, South Korea, Singapore, Sri Lanka, Sudan, Thailand, Trinidad and Tobago, Tunisia, Tanzania, Venezuela, Vietnam and, Zimbabwe

PTA, in effect

India-ASEAN Trade in Goods Agreement (India-ASEAN TIG)

11

Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam and, India

FTA

India-Brazil and South Africa (IBSA)

3

India, Brazil and, South Africa

Under negotiation

India-Canada CEPA

2

India, Canada

CEPA, under negotiation

India-Israel FTA

2

India, Israel

FTA, under negotiation

India-Korea CEPA (IKCEPA)

2

India, Korea

CEPA, in effect

India-Peru FTA

2

India, Peru

FTA, under negotiation

India-Malaysia Comprehensive Economic Cooperation Agreement (IMCECA)

2

India, Malaysia

CECA, in effect

India-Nepal Treaty of Trade

2

India, Nepal

Treaty, in effect

India-Australia CECA

2

India, Australia

Early Harvest Deal under negotiation

India-UAE Comprehensive Economic Partnership Agreement (CEPA)

2

India, UAE

Finalized, constitutional legal approvals stage

India-Sri Lanka FTA (ISLFTA)

2

India, Sri Lanka

FTA, in effect

Japan India Comprehensive Economic Partnership Agreement (JICEPA)

2

Japan, India

CEPA, in effect

South Asia Free Trade Agreement (SAFTA)

7

Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and, Nepal

FTA, in effect

India's Double Tax Avoidance Agreements (DTAAs)

India has one of the largest networks of tax treaties for the avoidance of double taxation and prevention of tax evasion. The country has Double Tax Avoidance Agreements (DTAAs) with over 85 countries under Section 90 of the Income Tax Act, 1961. The purpose of such tax treaties is to develop a fair and equitable system for the allocation of the right to tax different types of income between the ‘source’ and ‘residence’ countries.

A DTAA simply mitigates double imposition of tax when there is a cross national flow of income and ensures tax neutrality. The agreement between the negotiating countries provides specific guidelines on how the income generated in one country and transferred to another is to be taxed by the source and resident country. This ensures protection to taxpayers against double taxation and prevent any deterrence that the double taxation may otherwise promote in the free flow of international trade, investment, and transfer of technology between two countries.

A DTAA between India and other countries covers only residents of India and residents of the negotiating country. Foreign or non-resident companies operating in India are subject to withholding tax on their income – dividend, interest, royalty, or fees for technical services, as prescribed under the IT Act. However, foreign companies that are resident in the countries that India has a DTAA with, can claim more beneficial provisions and rates between the IT Act and the DTAA. Below is a comprehensive list of countries that have a DTAA with India and their respective withholding tax rates:

India’s Double Taxation Avoidance Agreement (DTAA)

 

Recipient Country

WHT (in %)

Recipient Country

WHT (in %)

 

Dividend

Interest

Royalty

For technical services

 

Dividend

Interest

Royalty

For technical services

Albania

10

10

10

10

France

10

10

10

10

Armenia

10

10

10

10

Georgia

10

10

10

10

Australia

15

15

10/15

10/15

Germany

10

10

10

10

Austria

10

10

10

10

Hungary

10

10

10

10

Bangladesh

10/15

10

10

N/A

Iceland

10

10

10

10

Belarus

10/15

10

15

15

Indonesia

10

10

10

10

Belgium

15

15/10

10

10

Ireland

10

10

10

10

Bhutan

10

10

10

10

Israel

10

10

10

10

Botswana

7.5/10

10

10

10

Italy

15/25

15

20

20

Brazil

15

15

25/15

N/A

Japan

10

10

10

10

Bulgaria

15

15

15/20

20

Jordan

10

10

20

20

Canada

15/25

15

10/15

10/15

Kazakhstan

10

10

10

10

China

10

10

10

10

Kenya

10

10

10

10

Colombia

5

10

10

10

Korea,Republic

15

10

10

10

Croatia

5/15

10

10

10

Kuwait

10

10

10

10

Cyprus

10

10

10

10

Kyrgyz Republic

10

10

15

15

Czech Republic

10

10

10

10

Latvia

10

10

10

10

Denmark

15/25

10/15

20

20

Lithuania

5/15

10

10

10

Estonia

10

10

10

10

Luxembourg

10

10

10

10

Ethiopia

7.5

10

10

10

Malaysia

5

10

10

10

Fiji

5

10

10

10

Malta

10

10

10

10

Finland

10

10

10

10

Mongolia

15

15

15

15

Mauritius

5/15

7.5

15

10

Spain

15

15

10/20

20

Montenegro

5/15

10

10

10

Sri Lanka

7.5

10

10

10

Myanmar

5

10

10

N/A

Sudan

10

10

10

10

Morocco

10

10

10

10

Sweden

10

10

10

10

Mozambique

7.5

10

10

N/A

Switzerland

10

10

10

10

Macedonia

10

10

10

10

Syria

5/10

10

10

N/A

Namibia

10

10

10

10

Tajikistan

5/10

10

10

N/A

Nepal

5/10

10

15

N/A

Tanzania

5/10

10

10

N/A

Netherlands

10

10

10

10

Thailand

10

10

10

N/A

New Zealand

15

10

10

10

Trinidad & Tobago

10

10

10

10

Norway

10

10

10

10

Turkey

15

10/15

15

15

Oman

10/12.5

10

15

15

Turkmenistan

10

10

10

10

Philippines

15/20

10/15

15

N/A

Uganda

10

10

10

10

Poland

10

10

15

15

Ukraine

10/15

10

10

10

Portugal

10/15

10

10

10

United Arab Emirates

10

5/12.5

10

N/A

Qatar

5/10

10

10

10

United Mexican States

10

10

10

10

Romania

10

10

10

10

United Kingdom

10/15

0/10/15

10/15

10/15

Russian Federation

10

10

10

10

United States

15/25

10/15

10/15

10/15

Saudi Arabia

5

10

10

N/A

Uruguay

5

10

10

10

Serbia

5/15

10

10

10

Uzbekistan

10

10

10

10

Singapore

10/15

10/15

10

10

Vietnam

10

10

10

10

Slovenia

5/15

10

10

10

Zambia

5/15

10

10

10

South Africa

10

10

10

10

         

 

India has entered into eight limited agreements for double taxation relief with respect to income of airlines/merchant shipping companies with the following countries:

  • Afghanistan
  • Lebanon
  • Peoples Democratic Republic of Yemen
  • Ethiopia
  • Maldives
  • Yemen Arab Republic
  • Iran
  • Pakistan
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