India will start imposing capital gains tax on investments routed through Mauritius from April next under a revised tax treaty
- To curb tax evasion and round-tripping of funds
- Mauritius and Singapore are among the top-most sources of foreign direct investments into India
- The signing of the protocol with Mauritius follows decade-long negotiations.
Amended treaty with Mauritius:
- From two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.
- The concessional rate would apply to a Mauritius resident company that can prove that it has a total expenditure of at least 27 lakh in the African island nation.
The amendment to the 1983:
- Double Taxation Avoidance Convention (DTAC) with Mauritius.
- Signed at : Port Louis, Mauritius
- DTAC did not provide for taxing capital gains in either of the two nations.
Revenue Secretary Hasmukh Adhia renogotiations and statements:
- Similar amendment to tax treaty with Singapore.
- It brings about a certainty in taxation matters for foreign investors.
- It bring certainty for FIIs while also reinforcing India’s commitment to OECD-BEPS initiative.
Economic Affairs Secretary Shaktikanta Das Statements:
- To provide a level-playing field between domestic investors.
- The investors who had unfair advantage when they came through the Mauritius route.
The three-decade-old taxation treaty
Existence : April 1, 1983.
Purpose: It is misused by many Indian and multinational companies to avoid paying tax or to route illicit funds.
Rajesh H Gandhi, Partner, Deloitte Haskins & Sells LLP statements:
- The amendment does provide certainty to foreign investors for GAAR will be commence in next year.
- It will increase the cost of investment in India for foreign funds.
- Chunk of the funds were not real foreign investment but Indians routing cash through the island to avoid domestic taxes.
- India has being insisted on review of the treaty since 2006.
- It wanted to ensure firms in Mauritius that invest in India are not just ‘shell’
Other Related Informations:
- Prime Minister Narendra Modi discussed the treaty on a visit to Mauritius in March last year.
- The DTAC till now provided that capital gains on sale of assets in India by companies registered in Mauritius can only be taxed in Mauritius.
short-term capital gains are taxed at 15 per cent in India
- Total FDI inflows of $29.4 billion in April-December 2015-16, Mauritius and Singapore accounted for $17 billion of foreign equity investment.
- The island nation with just 1.3 million people was the biggest single source of foreign direct investment into India in 2014-15.
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