 "Working group to examine issues on Mauritiaus DTAA")
A month after India redrew its tax agreement with Mauritius, the government has constituted a working group to examine the consequential issues arising out of the changes.
Last month, the India-Mauritius Double Taxation Avoidance Agreement (DTAA) was amended to introduce a levy to prevent investors using the island nation as a shelter to avoid levies.
"With a view to examine the consequential issues arising out of amendments to India-Mauritius DTAA and related issues, a Working Group headed by Joint Secretary (Foreign Tax and Tax Research-II), CBDT (Central Board of Direct Taxes) and comprising departmental officers and representatives of Sebi (Security and Exchange Board of India), custodians, brokerage firms and fund managers has been constituted," an official statement said.
The Working Group will submit its report to the CBDT within three months after examining the relevant issues, it added.
After mending the 33-year old tax treaty, 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%. The full rate will kick in from April 1, 2019.
Between 2000 and 2015, a third of all foreign direct investment (FDI) into India, around $94 billion came via Mauritius, according to the government data.
Foreign investors have historically 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.
The government has now formed a group to study consequences arising from the amendment.
New Delhi had since 2006 engaged with Mauritius to amend the treaty to check misuse by some investors who use a DTAA pact between the two nations to escape taxes.
The treaty amendment would trigger a similar amendment in India's tax treaty with Singapore. Mauritius and Singapore accounted for $17 billion of the total $29.4 billion FDI India received in April-December 2015.
