With reference to the amended Double Taxation Avoidance Agreement DTAA between India and Mauritius w...........

Economic Affairs Foreign Trade - Trends and Policy

With reference to the amended Double Taxation Avoidance Agreement (DTAA) between India and Mauritius, which of the following statements is/are incorrect?

1. A firm based in Mauritius, if its total operational expenses in that country is less than Rs.27 lakh, will not be eligible for the grandfathering provision

2. Investments made until 31st March 2017 by Mauritius tax residents will be exempt from any capital gains tax

Select the correct answer using the code given below:

1 only

2 only

both

none

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Explanation:

India 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.