Mauritius investments safe as GAAR will wait till 2016
While reiterating that when implemented, GAAR will apply on FIIs investing in India and not non-resident investors in these FIIs like participatory note holders “directly or indirectly”, the finance ministry also said tax residency certificates furnished by investors in the recently prescribed format would now be subject to verification for “bona fide substance” of the residency.
This means the government would try and restrict the treaty benefit to investors who can prove the substance of their Mauritius residency. Under the India-Mauritius tax deal, capital gains can only be taxed in Mauritius where it is minimal, the reason for around half of the FDI and a large part of FII investments in India coming in from/through the country.
While being keen to accelerate capital inflows in the wake of the record current account deficit of 5.4% of GDP in the July-September quarter, India is equally concerned about the misuse of the Mauritius route by investors to mitigate/nullify their tax liability in India and has been insisting on a review of the treaty to include the limitation of benefit clause intended to prevent “treaty shopping.”
India’s relatively recent bilateral tax agreement
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