India had amended the tax treaty with Singapore on December 30, 2016, under which for two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.
The revision of tax treaty will help curb revenue loss, prevent double non-taxation and streamline the flow of investments, a finance ministry statement said, adding that the amended tax treaty has been notified.
The India-Singapore DTAA provides for residence-based taxation of capital gains of shares in a company. The tax treaty amendment provides for source-based taxation of capital gains arising on sale of shares in a company with effect from April 1, 2017, it said.
The amended treaty also inserts Article 9(2) in the DTAA, which will facilitate relieving of economic double taxation in transfer pricing cases.
"This is a taxpayer-friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) action plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases," the statement said.
Besides Singapore, India amended bilateral tax treaties with Mauritius and Cyprus in 2016.
Between April and September 2016, India received USD 5.8 billion foreign direct investment (FDI) from Mauritius, USD 4.6 billion from Singapore, USD 1.6 billion from the Netherlands and USD 381 million from Cyprus.
As per the amended Mauritius tax treaty, companies have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period. The full rate will kick in from April 1, 2019.
Short-term capital gain tax is levied at 15 per cent in India while long-term capital gain tax is zero.
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