Indian Union Government take a landmark move with signing revised tax treaty with Mauritius. It will help Narendra Modi government to block the black money. India and Mauritius have signed a deal for amendment of convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion.
India will get taxation rights on capital gains arising from separation of shares acquired on or after April 1, 2017. With the signing of the amendment to the Double Taxation Avoidance Convention (DTAC) with Mauritius, sale of shares of an Indian resident company will be taxed at 50% of the applicable rate between April 1, 2017, to March 31, 2019.
According to the Ministry of Finance, “The Protocol will tackle the long pending issues of treaty abuse and round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.”
“It will improve transparency in tax matters and will help curb tax evasion and tax avoidance. At the same time, existing investments, i.e. investments made before 1.4.2017 have been grand-fathered and will not be subject to capital gains taxation in India.”
After the revelation of India Mauritius Tax treaty, Indian Share Market BSE Sensex jumped over 350 points and Nifty slipped over 100 points in early trade on Wednesday due to nervous selling by foreign funds.
The new changes will have an impact on foreign investors who route their investments from Singapore and Mauritius to avoid paying capital gains tax in India.
Around 50% of foreign direct investment (FDI) into India comes through Mauritius and Singapore. Some 34% of it is channeled through Mauritius and 16% through Singapore. The changes in the tax treaty will complement the government’s efforts to plug tax evasion and tax avoidance and its fight against black money hidden away by Indians.
In a relief to existing investors, shares acquired before 1 April 2017 will not be taxed by Indian authorities.
The revised agreement has also provided a two-year transitionary phase wherein the capital gains will be taxed at 50% of the existing tax rate; the full domestic tax rate will be applicable from 2019-20, provided the limitation of benefit clauses have been adhered to.
Under the earlier bilateral agreement between India and Mauritius, capital gains from sale of securities have been taxable only in Mauritius. Under the revised treaty, only those Mauritius-based companies that have a total expenditure of more than Rs.27 lakh in the preceding 12 months will be able to benefit from the tax treaty.
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