 "FinMin sets up Working Group to examine India-Mauritius DTAA concerns")
The government on Monday set up a Working Group to examine the consequences of the recent amendments to the India-Mauritius Double Taxation Avoidance Agreement (DTAA) and related issues.
The group will be headed by a joint secretary-level official at the income tax department and have departmental officers, representatives of Securities and Exchange Board of India, custodians, brokerage firms and fund managers as its members.
“The Working Group will submit its report to the Central Board of Direct Taxes within three months, after examining the relevant issues,” the government said in a release.
After over a decade of negotiations, India and Mauritius amended the bilateral tax treaty to give New Delhi the right to tax capital gains arising out of transfer of shares. Investments made prior to April 1, 2017 will be grandfathered and not be applicable for capital gains tax.
Although those fulfilling the limitation of benefits clause introduced in the treaty will have to pay just 50 per cent of applicable capital gains tax till April 2019, after which the full tax will kick in.
“The Working Group will submit its report to the CBDT within three months, after examining the relevant issues,” according to the official statement.
The protocol addresses India’s long-pending issue of suspected treaty abuse and round tripping of funds, taking advantage of a much lower taxation rate in Mauritius.
Experts say there was uncertainty over whether the limitation of benefits (LOB) clause in the treaty, which mandates a threshold of Rs 27 lakh was applicable only for transaction of shares and not investments in other securities. “These aspects are of very high importance since derivatives account for over 90 per cent of all equity trading in India. While exact data for FIIs is not available, it is highly likely that their exposure to India markets is largely in line with this position,” said Rahul Jain, partner, Nangia & Co.
“It is good to see that instead of leaving the amended provisions open for interpretation by the taxman as well as the taxpayers, the CBDT has constituted a Working Group of the stakeholders who will examine the various issues at hand in a time-bound manner,” added Jain.
The group will be headed by a joint secretary-level official at the income tax department and have departmental officers, representatives of Securities and Exchange Board of India, custodians, brokerage firms and fund managers as its members.
“The Working Group will submit its report to the Central Board of Direct Taxes within three months, after examining the relevant issues,” the government said in a release.
After over a decade of negotiations, India and Mauritius amended the bilateral tax treaty to give New Delhi the right to tax capital gains arising out of transfer of shares. Investments made prior to April 1, 2017 will be grandfathered and not be applicable for capital gains tax.
Although those fulfilling the limitation of benefits clause introduced in the treaty will have to pay just 50 per cent of applicable capital gains tax till April 2019, after which the full tax will kick in.
“The Working Group will submit its report to the CBDT within three months, after examining the relevant issues,” according to the official statement.
The protocol addresses India’s long-pending issue of suspected treaty abuse and round tripping of funds, taking advantage of a much lower taxation rate in Mauritius.
Experts say there was uncertainty over whether the limitation of benefits (LOB) clause in the treaty, which mandates a threshold of Rs 27 lakh was applicable only for transaction of shares and not investments in other securities. “These aspects are of very high importance since derivatives account for over 90 per cent of all equity trading in India. While exact data for FIIs is not available, it is highly likely that their exposure to India markets is largely in line with this position,” said Rahul Jain, partner, Nangia & Co.
“It is good to see that instead of leaving the amended provisions open for interpretation by the taxman as well as the taxpayers, the CBDT has constituted a Working Group of the stakeholders who will examine the various issues at hand in a time-bound manner,” added Jain.