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  1. Data Drive: The Mauritius fix

Data Drive: The Mauritius fix

India has amended its 33-year old tax treaty with Mauritius under which investment through that country will become taxable for short-term capital gains from April 1, 2017.

By: | Published: May 14, 2016 6:12 AM

India has amended its 33-year old tax treaty with Mauritius under which investment through that country will become taxable for short-term capital gains from April 1, 2017. Even investments through Singapore will become taxable for short-term capital gains because Singapore’s tax treaty exemptions are co-terminus with Mauritius. The move will prevent round-tripping of funds and funds that trade short-term will have to pay higher taxes. The government has given ample room for changes to take effect and even out the transition.

Mauritius and Singapore account for 28% and 44% of outstanding FPI investment in equities and bonds respectively, as on March 2016. The two countries account for half of the cumulative FDI inflows into India from April 2000 to December 2015. The amendment to the Mauritius treaty may not encourage re-routing of investment through other countries because the General Anti-Avoidance Rules (GAAR) will also be applicable from April 1, 2017.

Under the current treaty between India and Mauritius, the former does not have the right to tax capital gains arising to a Mauritius tax resident on sale of shares of Indian companies. Moreover, Mauritius does not levy a capital gains tax, which has made the country a favourable jurisdiction for investing into India.

The tax change
* From April 2017, investment through Mauritius will become taxable for short-term capital gains
* 7.5% withholding tax on interest income arising in India to Mauritian resident banks in respect of debt claims or loans made after March 31, 2017
* Shares bought and then sold after March 31, 2019 will attract full domestic tax rates
* Shares bought before April 1, 2017 will be exempt from tax, as per amended DTAA
* Shares bought after April 1, 2017 and sold before April 1, 2019 will attract half the domestic tax rate

Mauritius tops as FDI destination Cumulative inflows April 2000 to December 2015  $bn (% of total) Mauritius tops as FDI destination
Cumulative inflows April 2000 to December 2015
$bn (% of total)
FPI assets under custody by country  ($bn) FPI assets under custody by country ($bn)

Mauritius-tax-3

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