The Third Protocol amending India-Singapore Double Taxation Avoidance Agreement (DTAA) was notified on Thursday. The agreement came into force on February 27 this year.
The two countries had signed it on December 30 last year.
The India-Singapore DTAA at present provides for residence-based taxation of capital gains of shares in a company.
"The Third Protocol amends the DTAA with effect from April 1, 2017 to provide for source-based taxation of capital gains arising on sale of shares in a company," Finance Ministry said in a statement here.
"This will curb revenue loss, prevent double non-taxation and streamline the flow of investments. In order to provide certainty to investors, investments in shares made before April 1, 2017 have been grandfathered subject to fulfilment of conditions in Limitation of Benefits clause as per 2005 Protocol," it said.
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Further, a two-year transition period from April 1, 2017 to March 31, 2019 has been provided during which capital gains on shares will be taxed in source country at half the normal tax rate, the ministry said.
The Third Protocol also facilitates relieving of economic double taxation in transfer pricing cases.
"This is a taxpayer-friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases," it said.
The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion, it added.
--IANS
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