India and Mauritius sign the Protocol for amendment of the Convention for DTAA

The Indian Government has on 10th May 2016 amended the India-Mauritius treaty for the Avoidance of Double Taxation (“DTAA”) and the prevention of fiscal evasion with respect to taxes on income and capital gains between India and Mauritius.

The key features of the Protocol for amendment are as under:

  1. Source-based taxation of capital gains on shares: Capital gains arising from sale of shares of an Indian based company, acquired by an Investor on or after 1st April, 2017 will be taxed at full domestic rates from April 2019.
  2. Limitation of Benefits:Capital gains will be taxed at a transition rate equivalent to 50% of the domestic tax rate between 1st April, 2017 and 31st March, 2019 subject to conditions;
  3. Source-based taxation of interest income of banks: Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt claims or loans made after 31st March, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India.
  4. The Protocol also provides for updation of Exchange of Information Article as per international standard, assistance in collection of taxes, source based taxation of other income, amongst other changes.

The Amendment will tackle the long pending issues of round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius thereby improving transparency in tax matters and will help curb tax evasion and tax avoidance.

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