The Cabinet approved the revised India-Cyprus Double Taxation Avoidance Agreement (DTAA) on August 24. The agreement provides for source-based taxation of capital gains on transfer of shares. Agency sources said that Prime Minister Narendra Modi chaired a Cabinet meeting to take up the agreement between India and Cyprus regarding double taxation avoidance and preventing fiscal evasion in income tax.
An official level meeting between India and Cyprus was held in June and it was announced that it had reached an in-principle agreement with the government of Cyprus to resolve all pending issues in order to negotiate a new Double Taxation Avoidance Agreement (DTAA) between the two countries. Under the new scheme, India and Cyprus agreed to a source-based taxation of capital gains.
The Finance Ministry in a statement said, “It was agreed to provide for source-based taxation of capital gains on transfer of shares. However, a grandfathering clause would be provided for investments made prior to April 1, 2017, in respect of which capital gains would be taxed in the country of which taxpayer is a resident.”
Cyprus which has a DTAA with India since 1994, is an important source of foreign fund flows into the country. Foreign Direct Investment worth more than Rs 42,680.76 crore has flowed into India in the last 16 years. From November 2013, Cyprus has been removed from the list of ‘Notified Jurisdictional Areas because of the completion of the negotiation on avoidance of double taxation and the prevention of fiscal evasion.