Domestic companies routing their investments through Mauritius may soon have to pay capital gains tax. The tax authorities are pressing for checking the loopholes in the tax treaty with the island nation.
The Central Board of Direct Taxes (CBDT) suspects the government is losing large amount of revenue due to routing of investments by domestic firms through Mauritius.
Capital gains tax is a levy on the profit from sale of assets, investments, capital accumulation, among others.
“The government would soon press for a review of the capital gains tax provisions in its tax treaty with Mauritius. The main reason cited by CBDT is suspected round-tripping of funds and also loss of revenue, particularly in the case of large investments,” a finance ministry said.
Round-tripping refers to money from one country going out through unofficial channels and being invested back into the same country from outside to avail of tax benefits under the double tax avoidance agreement (DTAA). India had signed a DTAA with Mauritius way back in 1983.
During the 2000-2010 period, the maximum foreign direct investment inflows into the country came through the Mauritius route. The Indian Ocean nation has pumped in a whopping $47.24 billion into the country during the period, constituting 43 per cent of the total FDI inflow.
The CBDT has been pressing for a review of the capital gains tax provisions for the past four to five years. However, it could not be done due to the diplomatic ties New Delhi has with the island nation.
