Define Tax Treaty. Discuss the principal objectives of Indian Tax Treaties.

Tax Treaty: A Tax treaty is a bilateral agreement made by two countries to resolve issues involving double taxation of passive as well as active income. Tax treaties generally determine the amount of tax that a country can levy on a taxpayer's income/capital. It is also called a Double Taxation Avoidance Agreement. Principal objective of India Tax Treaties are as under: (1) For granting relief in respect of Income on which tax have been paid both under the Income Tax Act, 1961 and Income Tax Act prevailing in the other country; or Income-tax chargeable under the Income Tax Act, 1961 and under law in force in that country to promote mutual economic relations, trade and investment; or (2) For the avoidance of double taxation of on income under the Income Tax Act, 1961 and under the corresponding law in force in that country; or (3) For exchange of information for the prevention of evasion or avoidance of Income Tax chargeable under the Incomes Tax Act, 1961 or under corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (4) For recovery of income tax under Income Tax Act, 1961 and under the corresponding law in force in that country.