Month later when India redrew its tax agreement with Mauritius, Indian government has formed a Working group in order to study the consequences of the recent amendments to the India-Mauritius Double Taxation Avoidance Agreement (DTAA) and related issues. This working group is headed by Joint Secretary (FT&TR-II), CBDT and comprises departmental officers and representatives of SEBI, custodians, brokerage firms and fund managers. After examining the relevant issues, the Working Group will be submitting its report to the Central Board of Direct Taxes (CBDT) in next three months.
Earlier, foreign investors bought shares in Indian companies via entities in countries like Mauritius and Singapore, with which India has a treaty to avoid double taxation. These countries either have no tax on capital gains or have rates lower than what they are in India. It was expected that the changes will dampen investments into India as taxes would lower net returns for investors. Hence the government has now formed a working group to study consequences arising from them.
In May, the India-Mauritius Double Taxation Avoidance Convention was amended to introduce a levy to prevent investors using the island nation as a shelter to avoid levies. Under the amendment, companies routing funds into India through the tropical island after March 31, 2017 will have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period. The levy is currently at 15 per cent. The full rate will kick in from April 1, 2019.