From April 1, 2017, it will be difficult for traders or investors to do round tripping in domestic equity markets as India and Mauritius have signed a pact for amendment of convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion. The announcement came after market hours on Tuesday.
After the amendments, sale of shares of an Indian resident company will be taxed at 50 per cent of the applicable rate between April 1, 2017 and March 31, 2019. Full capital gains tax will apply from April 1, 2019.
Funds which are not real foreign investment but routing cash through the island to avoid domestic taxes are known as ‘round tripping’.
On stock market outlook, Pankaj Pandey, head of research, ICICI Securities said, “There could a possible knee-jerk reaction in Wednesday’s trading session after the announcement. We can see some volatility in foreign money inflows in short term after the move. However, more quality foreign inflows from Mauritius are now expected in long term if economic fundamental remain fine. We have Nifty target of 8,500 by year-end on expectation that earnings growth will remain in range of 17-18 per cent.”
However, some market experts differ and feel no impact of the announcement. G Chokkalingam, founder, Equinomics Research and Advisory, said, “The move will not impact domestic equity markets because the decision is largely compromised one. Foreign investments will also not be impacted with the move on immediate basis because it is applicable from next year. In future, India will see more matured investments from Mauritius after the move.”
Buoyed by firm global cues, the BSE Sensex gained 83.67 points to 25,772.53 on Tuesday, while NSE Nifty index settled 21.75 points up at 7887.80.
India has been seeking to amend its Double Taxation Avoidance treaty signed with Mauritius in 1983 for years.
In fiscal 2014-15, foreign direct investment (FDI) to India was $24.7 billion, with about 24 per cent from Mauritius, the biggest single FDI source, and Singapore accounting for 21 per cent, provisional figures from the central bank showed. Mauritius accounted for 44 per cent of FDI in 2012-13.