Cyprus has said the Indian government has agreed to withdraw a notification that suspended tax benefits for investments from the island nation.
The withdrawal is subject to Cyprus, one of the main sources of foreign direct investment into India, adopting the global convention on exchange of tax information.
"As it concerns the renegotiation of the existing DTA (Double Tax Agreement) between Cyprus and India which entered into force on December 21, 1994, a new DTA is expected to be finalised soon.
"It was further agreed that, based on the discussions held, once the notification of Cyprus as a 'notified jurisdictional area' under section 94A of the Indian Income-Tax Act 1961 is rescinded, it will be with retrospective effect from November 1, 2013, date when the notification of India was issued," the Cyprus government said in a statement on December 3.
Cyprus and India held discussions from November 26-28 in New Delhi, it said. Comments on the issue could not be obtained from India's Finance Ministry.
The Finance Ministry had classified the island nation as a notified jurisdictional area on grounds that Cyprus was not providing information requested by tax authorities under the taxation treaty.
Following the notification, all payments made to Cyprus attracted a 30 per cent withholding tax and Indian entities receiving money from there were required to disclose the source of funds.
The deliberations focused on issues related to effective exchange of information between the two nations and a long pending re-negotiation of the bilateral taxation treaty. The re-negotiations took place in a friendly and cordial manner, it added.
To address the issue, the Cyprus government said it has agreed to adopt the provisions related to tax information exchange under the OECD convention.
Cyprus would adopt provisions of Article 26 of the OECD Model Tax Convention relating to exchange of information in a new DTA between the two countries.
Paris-based advisory group Organisation for Economic Cooperation and Development (OECD) sets the global standards on tax matters.
Besides, both sides agreed to improve the channels of communication and exert every effort in facilitating each other in processing requests and responses in a swift and effective manner, the statement said.