The revised tax treaty with Mauritius, which allows India to tax capital gains on investments routed through the island nation, will tackle round tripping of funds and curb tax evasion, Finance Ministry said today.
Following the decade-long negotiations, India and Mauritius signed the amendment to the 1983 Double Taxation Avoidance Convention (DTAC) on May 10, and was notified by India on August 11.
"The Protocol will tackle 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 the two contracting parties.
"It will improve transparency in tax matters and will help curb tax evasion and tax avoidance," a Finance Ministry statement said.
Under the amended treaty, India will impose capital gains tax at 50 per cent of the prevailing domestic rate for two years beginning April 1, 2017. Full rate will apply from April 1, 2019.
But this concessional rate would apply to a Mauritius resident company that can prove that it has a total expenditure of at least Rs 27 lakh in the African island nation and is not a 'shell' company with just a post office address.
"The Protocol also provides for updating of the Exchange of Information Article as per the international standard, provision for assistance in collection of taxes, source-based taxation of other income, amongst other changes," the ministry said.
India received as much as USD 8.3 billion Foreign Direct Investment (FDI) from Mauritius last fiscal.
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