Last month both countries had signed the Bilateral Investment Protection and Promotion Agreement during Nepali Prime Minister Baburam Bhattarai's visit to New Delhi.
The revised DTAA was also to be signed during that trip, but had to be postponed as some changes were incorporated and they had not been cleared by the UPA Cabinet.
"The revised DTAA will provide tax stability, facilitate mutual economic cooperation and stimulate flow of investment, technology and services between India and Nepal," Mukherjee said after signing the agreement.
In the new agreement, which annuls the earlier one signed in 1987, the threshold withholding tax rates on dividends, interest, etc., are rationalized to reflect the present day situation and developments in international taxation.
India already has 81 such DTAAs with other countries while Nepal has 10 similar agreements. The revised DTAA will come into force on a date to be notified by both countries.
"The new agreement has clear provision of taxation related to cross border transaction, services and employment. It has incorporated provision of exchange of information as per Organization for Economic Cooperation and Development," said Nepali finance minister Barsha Man Pun.
Mukherjee had meetings with President Ram Baran Yadav, Prime Minister Baburam Bhattarai and leaders of all major ruling and opposition parties on the ongoing peace and constitution drafting processes in Nepal.