Finance Minister Arun Jaitley today said India getting Mauritius to sign a revised tax treaty after a decade long effort was an attempt to curb black money generation and will help minimise round tripping of funds.
Replying to a debate on the Finance Bill in the Rajya Sabha, Jaitley said India has been trying to renegotiate the treaty with the island nation since 1996.
"Finally in the last one year we had four rounds of discussion. We have been able to renegotiate and as part of the renegotiation, we are phasing out some of those (round tripping) aspects.
"And hopefully the fears which members had that the route can also be partly used for round tripping..., in our effort against black money we have even gone ahead and tried to minimise the dangers of that particular situation," Jaitley said.
The Minister's statement was in response to concerns raised by several members about round tripping of funds by Indians wanting to avoid paying domestic taxes.
Under the revised treaty, from April 1, 2017, companies routing funds into India through Mauritius will have to pay short-term capital gains tax at half the rate prevailing during the 24-month transition period. Full rate, currently at 15 percent, will kick in from April 1, 2019.
"... so that there is no immediate impact on the market, we have grandfathered all past and investments which will take place till April 1, 2017," Jaitley said.
The benchmark BSE Sensex fell by 175.51 points to 25,597.02 as foreign funds cut down their exposure over fears that equity inflows would take a hit after India's move to impose capital gains tax on investment through Mauritius.
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