Indo-Mauritius Tax Treaty: A Right Action at Appropriate Time
It was business as usual at the Indian bourses on May 10, with Sensex declining just by one percent despite behaving highly volatile throughout the day. This was relatively calm from otherwise choppy scenario at stock exchanges being witnessed for some time now.
However, such a muted response was not expected considering the amendments to to the two-decade long loosely structured Indo-Mauritius treaty that allowed investors to get away by paying no capital gains tax on their investments in India.
Kudos to the government for making the changeover to the new regime very smooth. At least, it was against what I expected.
Holistically, it can be articulately defined as a right action at an appropriate time. It’s a big change and definitely for good. How?
From now onward, investments from Mauritius will qualify under capital gains tax net unlike before when the treaty provided for taxing capital gains tax (CGT) in the country where the investor was resident. This means that only capital gains on shares purchased after April 1, 2017 will be subject to Indian tax. So no CGT arises on shares already purchased or up to April 1, 2017.
After April 1, 2017, they can look for an alternate channel to invest money into India or decide to pay the capital gains tax and continue investing through Mauritius.
The companies having operations in Mauritius can show that they have spent Rs 27 lakh as operating expense in Mauritius and can pay just 7.5 percent as short term capital gains tax on shares purchased from 1st April, 2017 to 31st March, 2019.
The changes made to Mauritius treaty will affect the Double Taxation Avoidance Agreement (DTAA) with Singapore too as the this treaty too is linked to the Mauritius treaty. A question mark also prevails over participatory notes (PNs) issued by foreign investors.
What this recent action signifies is that the Centre is actually showing seriousness regarding tackling black money and not just depending on rhetoric. In addition, it also introduces parity in the taxation of both domestic and foreign investors.
Indisputably, this is for good!