Hours before India decided not to attend the 13th Saarc summit in Dhaka, a meeting of the cabinet presided by Prime Minister Manmohan Singh cleared the signing of the agreement.

The agreement is aimed at providing tax relief to students and teachers for pursuing academic interests, Finance Minister P Chidambaram told reporters.

Gaining assistance is one of the important provisions of the proposed treaty which would ensure recovery of taxes from defaulting companies that have assets outside India, he said.

The agreement was to be signed in Dhaka at the 31st session of the Standing Committee consisting of foreign secretaries in the run up to the summit.

India was entrusted with the task of preparing a draft of the treaty aimed at breaking new grounds in international tax treaties, Chidambaram said.

The agreement had been under consideration since 1996 when a meeting of the Committee on Economic Cooperation of Saarc had decided to go for a multilateral agreement for avoiding double taxation among the seven member countries- India, Bangladesh, Pakistan, Nepal, Bhutan, Sri Lanka and the Maldives.