Following Mauritius’ independence on March 12, 1968, the first Prime Minister and the Father of the Mauritian Nation Sir Seewoosagur Ramgoolam accorded centrality to India in Mauritius’ foreign policy. Subsequently, successive Mauritian leaders ensured that India occupies a position of significance and importance in the foreign policy orientation and activities of Mauritius.

Bilateral Agreements

India and Mauritius have signed a wide range of bilateral agreements. Some of the important agreements are the Double Taxation Avoidance Convention (1982), Bilateral Investment Promotion and Protection Agreement (1998), Extradition Treaty (2003) MOU Concerning Cooperation in the Exchange of Finance Intelligence Related to Money Laundering & Financing of Terrorism (2008)

Bilateral Trade

• India is Mauritius’ largest trading partner and has been the largest exporter of goods and services to Mauritius since 2007. In 2021, India exported goods worth US$ 745.5 million and imported goods worth US$ 66.72 million in the same period. India’s exports to Mauritius comprise largely petroleum products followed by pharmaceutical products and cotton.
• India and Mauritius entered into the India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) which came into force in 2021. CECPA is the first trade agreement signed by India with a country in Africa. 

Bilateral Development Assistance

• Over the past forty years, India has extended eleven LOCs to Mauritius to assist in the development of its infrastructure, human resource skills development, capacity building, project appraisal, etc.
• Mauritius is one of the major beneficiaries of the Indian Technical and Economic Cooperation (ITEC) programme, with 170 civilians and 100 defence slots being offered to Mauritius in the FY 2012-13.
• The Pan African e-Network Project was inaugurated on February 26, 2009, connecting Mauritius and other African countries with India through a satellite and fiber-optic network for sharing India’s expertise in education and health care.
• In 2016, India provided a grant of USD 353 million to Mauritius as a special economic package for five priority projects:

1. Metro Express Project
2. Supreme Court Building
3. New ENT Hospital
4. Social Housing Project
5. Digital Tablets for school children

• In 2017, India extended a USD 500 million Line of Credit (LoC) to Mauritius to finance social/infrastructure projects.
• In 2021, an LoC of USD 190 million and a grant of USD 10 million was approved by India for Phase III of the Metro Project.
• In January 2022, the two countries signed an MoU on Community Development Project to undertake small, people-oriented projects in Mauritius.
• In August 2022, India extended another LoC worth USD 300 million and a grant of USD 25 million to Mauritius for the extension of the Metro Project in Mauritius.

Other Institutions built in Mauritius with India's assistance

• Mahatam Gandhi Institute - a joint venture between India and Mauritius for promoting Indian culture - was established in 1976
• Rabindranath Tagore Institute - a Centre of Studies on Indian culture and traditions - was established in Mauritius in 2000
• Mauritius hosts World Hindi Secretariat - an India-Mauritius bilateral organization which was constructed with Indian funding - was inaugurated during Indian President Ram Nath Kovind's visit to Mauritius in 2018

FDI into India

• Cumulative FDI worth USD 158 billion came to India from Mauritius in the period from 2000 to 2022. It constitutes 27% of the total FDI inflows into India during the same period.
• The main reason for such a huge FDI routing through Mauritius to India is the Double Taxation Avoidance Agreement (DTAA) between the two countries.

Why do companies follow Mauritian Route for FDI in India?

India has a comprehensive DTAA with Mauritius. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to taxpayers who have paid taxes to a country with which India has not signed a DTAA. Thus, India gives relief to both kinds of taxpayers.

According to the tax treaty between India and Mauritius, capital gains can only be taxed in Mauritius; the same treaty exists with 16 other countries. But with only 3% of capital gains tax, the quality of its service and regulatory framework, its pool of professionals, geographical proximity, cultural affinities, and long historical ties with India, Mauritius is the most attractive conduit for investments into India.

The DTAC has helped Mauritius in the development of its Financial Services sector and India has on the other hand benefitted in terms of foreign direct investments, which for the last twenty years stand at a cumulative figure of around USD 158 billion, and also in terms of job creation.

Current Aspect of FDI

• Mauritius has been dethroned by Singapore as the top source of Foreign Direct Investment (FDI) into India, accounting for 27.01% of FDI inflows into India 2021-22. Mauritius is now the third-largest FDI provider to India (15.98%) while the US ranks at number 2 with 17.94%.
• FDI from Mauritius to India has shrunk over the past few years. The reason behind this reversal of trend is the uncertainty over the Double Tax Avoidance Agreement (DTAA) between India and Mauritius.
• FDI inflows from Mauritius have started drying up on fears of the impact of General Anti Avoidance Rules (GAAR) and possible re-negotiation of the tax avoidance treaty, Indian tax specialists aver.
• Conversely, according to experts, the Double Taxation Avoidance Agreement (DTAA) with Singapore incorporates the Limitation-of-Benefits (LoB) clause, which has provided comfort to foreign investors who increasingly prefer to use Singapore as a channel to route funds to India.
• According to tax experts in India, the LoB clause in the India-Singapore treaty serves to justify the concept of economic substance in Singaporean entities, bringing certainty and avoiding chances of litigation.

Amended India-Mauritius DTAA 2016

India on 10th may 2016 signed the protocol amending the Double Taxation Avoidance Agreement (DTAA) with Mauritius. While the protocol gives India the right to tax capital gains arising from sale or transfer of shares of an Indian company acquired by a Mauritian tax resident, it proposes to exempt investments made until March 31, 2017, from such taxation. The government also said that shares acquired between April 1, 2017 and March 31, 2019 will attract capital gains tax at a 50% discount on the domestic tax rate — i.e., at 7.5% for listed equities and 20% for unlisted ones. The full tax impact of the protocol will fall on investments beginning April 1, 2019, when capital gains will attract tax at the full domestic rates of 15% and 40%. The DTAA was a major reason for a large number of foreign portfolio investors (FPI) and foreign entities to route their investments in India through Mauritius. Between April 2000 and December 2015, Mauritius accounted for $ 93.66 billion — or 33.7% — of the total foreign direct investment of $ 278 billion. The imposition of capital gains tax on the acquisition of shares of Indian companies after March 31, 2017, could, however, result in a slowing of the flow of investments.

While Mauritius has traditionally accounted for almost a third of the total FDI inflow into India, Singapore has emerged as a preferred destination over the last few years. In fact, for the 9-month period from April 2015, FDI inflows through Singapore were $ 10.98 billion, significantly higher than the $ 6.1 billion that came through Mauritius. In this situation, the impact of the amendment in the Mauritius DTAA on the Singapore DTAA becomes critical — and it is expected that the amended tax regime for Mauritius will be applicable to capital gains for Singapore tax residents too. Article 6 of the protocol dated July 18, 2005, to the Singapore Tax Treaty says that the capital gains exemption under the Singapore Tax Treaty would remain in force only till the time the Mauritius Tax Treaty provides for capital gains exemption on alienation of shares. Therefore, the benefits accorded under the Singapore Tax Treaty would fall away, unless amended.

Impact on foreign investment

Since investments until March 31, 2017, have been exempted from the capital gains tax, there is no risk of an immediate outflow of funds. However, the protocol will impact all prospective investments with effect from April 1, 2017. Also, the benefit of the two-year transition period will be limited to companies that are not regarded as shell/conduit companies, and whose total expenditure on operations in Mauritius has been at least Rs 27 lakh in the preceding 12 months. Experts feel that while some investors who are bullish on India may advance their plans and invest before April 1, 2017, in order to save tax, many others will raise their due diligence procedure on investments, factoring in the tax cost in the returns they generate.

However, the revamped India­Mauritius tax treaty will apply to only investments in shares and not to other instruments as per the details of the agreement released by Port Louis. Investors in mutual funds, derivatives, and debt will likely escape tax as these instruments aren't mentioned in the reworked double taxation avoidance agreement. The new protocol sets a lower tax rate on interest earned by taxpayers in Mauritius when compared with India's treaties with other countries. It also plugs a significant loophole that foreign entities used to avoid paying tax: sending staff to India via a Mauritius entity. This (wording of the treaty) suggests that investments by Mauritius tax residents in other Indian securities — that is exchange-traded derivatives and convertible or nonconvertible debentures — shall continue to remain exempt in India even after April 1, 2017, subject to the General Anti Avoidance Rules.