The changes in the taxation agreement between India and Mauritius will result in a more stable and transparent tax regime and is "long-term positive" for investors, says a report by Kotak Institutional Equities.
According to the report, the new protocol between India and Mauritius will provide clarity on the taxation of capital gains on shares acquired in a resident company in India by Mauritius residents.
"This will result in similar tax treatment of capital gains for both domestic and overseas investors and establish a more stable and transparent taxation regime for overseas investors," Kotak Institutional Equities said in a research note.
Under the revised tax treaty, India will begin imposing capital gains tax on investments routed through Mauritius from April 2017 to curb tax evasion and round-tripping of funds.
The report said that stable and transparent taxation regime is a 'long-term positive'.
"The new India-Mauritius tax protocol should end the uncertainty around the India-Mauritius tax arrangement and implementation of General Anti Avoidance Rule (GAAR)," it said.
Under the amended treaty with Mauritius, for two years beginning April 1, 2017, capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.
But this concessional rate would apply to a Mauritius resident company that can prove that it has a total expenditure of at least Rs 27 lakh in the African island nation and is not a 'shell' company with just a post office address.
