India, Mauritius sign pact to tackle black money

The Dollar Business Bureau

India and Mauritius on Tuesday inked a protocol for an amendment in the convention to avoid double taxation and prevention of fiscal evasion, with regards to taxes on income and capital gains.

According to an official statement, the protocol will look into the issues pending from a long time related to abuse of treaty and round tripping of investment attributed to the India-Mauritius treaty, reduce revenue losses, avoid double non-taxation, streamline the flow of funds and encourage the flow of information exchange between the two countries.

The latest development will improve transparency in all tax-related matters and help curb tax avoidance and tax evasion.

The two countries listed out three key features of the protocol: (i) Source-based taxation of capital gains on shares, (ii) Limitation of Benefits (LOB), and (iii) Source-based taxation of interest income of banks.

 The taxation of capital gains on shares will enable India to acquire taxation rights on capital gains that arise from the alienation of shares, obtained on or after April 1, 2017. It will be applicable on any company located in India, and simultaneously protect investments in shares acquired before April 1, 2017.

Under the LOB protocol, the benefit of 50 percent reduction in tax rate during the alteration period, from April 1, 2017 to March 31, 2019, shall be subjected to LOB Article. A resident of Mauritius will not be entitled to benefits of 50 percent reduction in the tax rate if he/she fails the business test.

A citizen is estimated to be a shell/conduit company if its overall operating expenses in Mauritius is less than Rs.2,700,000 (MUR 1,500,000) in the immediate preceding period of 12 months.

Under the source-based taxation of interest income of banks, interest arising in India to Mauritian resident banks will be subjected to withholding tax in India at the rate of 7.5 percent, with regard to debt claims or loans taken after March 31, 2017.

The interest income of Mauritian resident banks with regards to debt-claims existing on or before March 31, 2017 shall be exempted from tax in India.