The government has in-principle decided to ban round-tripping of FDI (an Indian company routing investments in its other Indian ventures through an off-shore subsidiary) on the grounds that it results in a loss of revenue for the government.
Dividends paid by an Indian company to its Indian parent are taxed. But if the Indian parent routes the investment through a subsidiary in a tax haven like Mauritius, it saves on this tax by parking the income by dividends in the offshore company. The department of revenue in the ministry of finance is of the view that this is a loophole to circumvent payment of tax by Indian companies.
The government
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