Govt to rework DTAA tax provisions to check misuse

In order to check tax avoidance by foreign investors by misusing bilateral treaties, the government has begun negotiations with some countries to amend provisions on capital gains taxation in their Double Taxation Avoidance Agreements (DTAAs).
Some of the DTAAs entered into by India with other countries allow taxation of capital gains on shares only in the country of which the taxpayer is a resident.
"The government is aware that some of the investments coming from such countries may be influenced by this provision," Minister of State for Finance Jayant Sinha said in a written reply in the Lok Sabha.
"The government has already initiated the process of negotiations with such countries for amending the provisions on capital gains taxation in DTAAs."

Two members of the House asked the government whether it's aware of foreign investors routing funds through countries having DTAAs with India to avail tax exemption.
Sinha said quantification of tax revenue loss as a result of avoidance and tax planning by companies is not undertaken as the data required for such an exercise are not readily available.

"However, the government of India is aware of the potential loss of revenue from such tax avoidance and has been taking all necessary measures for preventing it," he said.
He further said India has actively participated in the Base Erosion and Profit Shifting (BEPS) project undertaken by OECD and G-20 countries, which is aimed at aligning taxation of income with the place where economic activity is performed and value is created. This also includes ensuring DTAAs are not used for tax avoidance.

The provisions of General Anti-Avoidance Rules (GAAR), which have been provided in the Income-tax Act, "shall apply for the assessment year 2018-19 and subsequent assessment years," Sinha clarified.