After a lacklustre Budget, the government has dealt another body blow to the market in the form of new General Anti-Avoidance Rules (GAAR). With the market already reeling from a slowing earnings growth and foiled economic reforms, this new tax proposal by the government could hurt flows of anonymous foreign funds into shares.
Overseas portfolio investors, routing their investments via countries like Mauritius, currently do not pay any tax on short-term capital gains. This is because the Indian Ocean island is exempted by India from paying tax under the Double Taxation Avoidance Agreement.
But Pranav Sayta, partner, Ernst & Young says all this is likely to change, making Mauritius an even more doubtful destination for treaty benefits. The new provisions will impact FIIs transactions when dealing with Indian equities as the new norms will make it difficult to defend P-Note or participatory note transactions. Below is an edited transcript. Watch the accompanying video for more. Q: Would the inclusion of these GAAR provisions which were supposed to come in the DTC coming in now imply that almost all Mauritius based investors would now be taxed normally? Is it safe to assume that the double-tax avoidance doesn
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