In the backdrop of the Panama papers expose, the Indian and the Mauritius governments have decided to amend a three-decade-old tax treaty to help check tax evasion.
According to the new terms of the treaty, Capital gains in both countries will now come under the tax net. The deal will ensure that no entity gets away without paying taxes in either country.
India and Mauritius have agreed to exchange more information with each other to ensure that names of entities who invest funds through the island nation are available to the Indian tax authorities.
The deal is expected to check round-tripping of funds and flow of black money.
The signing of the Protocol with Mauritius follows a decade long negotiations.
Under the amended treaty with Mauritius, for two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019, a finance ministry statement said.
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 amendment to the 1983 Double Taxation Avoidance Convention (DTAC) with Mauritius was signed at Port Louis, Mauritius on Tuesdau. Till now the DTAC did not provide for taxing capital gains in either of the two nations.
Meanwhile, a similar amendment is being negotiated to the tax treaty India has with Singapore. Mauritius and Singapore are among the top-most sources of foreign direct investments into India and together also account for a big chunk of total inflows into the country's capital markets.
(With PTI Inputs)
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