11 May 2016

Who gains, who loses in new tax pact with Mauritius? Will FIIs run away?

The Press Note states that the protocol amends the prevailing residence based tax regime under the India-Mauritius DTAA and gives India a source based right to tax capital gains which arise from alienation of shares of an Indian resident company acquired by a Mauritian tax resident.

However, the protocol provides for grandfathering of investments and the revised position shall only be applicable to investments made on or after April 1, 2017. In other words, all existing investments up to March 31, 2017 have been grandfathered and exits/shares transfers beyond this date will not be subject to capital gains tax in India.

Additionally, the protocol introduces a limitation of benefits provision which shall be a prerequisite for a reduced rate of tax (50% of domestic tax rate) on capital gains arising during a two year transitionary period from April 01, 2017 to March 31, 2019. Further, the article on exchange of information has also been updated to match the prevailing international standards.

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