Ministry of Finance has notified the revised tax treaty with Mauritius under which India will impose capital gains tax on investments routed through the island nation from April 1 next year in a bid to curb tax evasion.
The Protocol amending the agreement between the Government of the Republic of India and the Government of Mauritius, signed on 24th August, 1982 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, and for the encouragement of mutual trade and investment, as set out in the Annexure to this notification, was signed at Mauritius on the 10th day of May this year.
The said Protocol entered into force on the 19th day of July, 2016, being the date of the later of the notifications of the completion of the procedures as required by the respective laws for entry into force of the said Protocol, in accordance with paragraph 1 of Article 9 of the said Protocol.
India and Mauritius has signed the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, and for the encouragement of mutual trade and investment, signed at Port Louis on 24th August, 1982.
Under the amended treaty with Mauritius, for 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.
As per the revised treaty, investments made prior to April 1, 2017, will be protected from new tax provisions.
The island nation with just 1.3 million people was the biggest single source of foreign direct investment into India in 2014-15, accounting for about 24 per cent of USD 24.7 billion foreign direct investment (FDI). The three-decade-old taxation treaty is said to have been misused by many Indian and multinational companies to avoid paying tax or to route illicit funds.
Read the full text of the notification below.
