Working group to examine issues on Mauritius DTAA
NEW DELHI: The government has constituted a working group to examine the “consequential issues” arising out of the changes in India’s tax treaty with Mauritius.The India-Mauritius Double Taxation Avoidance Convention was amended last month to introduce a levy to prevent investors from using the island nation as a shelter to avoid taxes.
“With a view to examine the consequential issues arising out of amendments to India-Mauritius Double Taxation Avoidance Convention and related issues, a Working Group headed by joint secretary (FT&TR-II), CBDT and comprising departmental officers and representatives of Sebi, custodians, brokerage firms and fund managers has been constituted,” an official statement said on Monday.
The working group will submit its report to the Central Board of Direct Taxes within three months after examining the relevant issues, the statement said. Companies routing funds into India through the tropical island after March 31, 2017 will have to pay short-term capital gains tax at half the prevailing rate of 15% during the two-year transition period.
The full rate will kick in from April 1, 2019. Between 2000 and 2015, a third of all foreign direct investment into India, about $94 billion, came via Mauritius, according to the government data. Foreign investors have historically bought shares in Indian companies via entities in countries such as Mauritius and Singapore, with which India has a treaty to avoid double taxation. .
These countries either have no tax on capital gains or have rates lower than what they are in India. It was expected that the changes will dampen investments into India since taxes would lower net returns for investors.
The working group will examine this issue. India has engaged with Mauritius since 2006 to amend the 33-year old treaty to check misuse by some investors who use a double-taxation avoidance pact between the two nations to escape taxes.