India removes Cyprus from 'notified jurisdictional area'

Following revision of the two-decade old tax treaty, India today removed Cyprus from the list of 'notified jurisdictional area' thereby providing big relief to investors and Indian companies that have raised capital from Cyprus investors.
"In exercise of the powers conferred by sub section (1) of section 94A of the Income-tax Act, 1961, the Central Government hereby rescinds the notification of the Government of India in the Ministry of Finance, Department of Revenue, number 86 of 2013 published in the Gazette of India," Central Board of Direct Taxes (CBDT) said in a notification.
India blacklisted Cyprus in 2013 for not sharing tax information. It had classified the island nation as a notified jurisdictional area on grounds that Cyprus was not providing information requested by tax authorities under the taxation treaty.

Following the notification, all payments made to Cyprus attracted a 30 per cent withholding tax and Indian entities receiving money from there were required to disclose the source of funds.
India and Cyprus had on November 18 signed the revised bilateral tax treaty under which capital gains tax will be levied on sale of shares on investments made after April 1, 2017, bringing the island nation at par with Mauritius in terms of tax treatment.
The new agreement also provides for exchange of banking information and allows the use of such information for purposes other than taxation with prior approval of competent authorities of the country.

PwC Partner (Direct Tax) Abhishek Goenka said revoking the earlier notification "will come as a big relief" to investors and Indian companies that have raised capital from Cyprus investors.

"However, the rescission is not retroactive and that comes as a big dampener," he said.
As per the revised tax treaty, capital gains arising from sale of shares of an Indian company will be taxable at the applicable domestic tax rate.
"It is interesting to note that while the protocol to the India-Mauritius DTAA provides for a scenario wherein the taxes in India will apply at 50 per cent of the domestic tax rate on capital gains during the transition period of two years. No such relief is granted in the new India-Cyprus DTAA and therefore, capital gains arising from sale of shares of an Indian company will be taxable at the applicable domestic tax rate," said Rahul Jain, Partner, Nangia & Co.