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India-Mauritius tax treaty amendment - 10 things to know with detail

• Background: The India-Mauritius tax treaty was first signed in 1982 to promote bilateral trade and investment between the two countries. However, concerns were raised over the years about the potential misuse of the treaty for tax evasion and round-tripping of funds.
• Amendment in 2016: In May 2016, India and Mauritius signed an amendment to the tax treaty to address these concerns and prevent abuse of the treaty for tax evasion purposes.
• Capital gains tax: One of the key changes in the amendment was the introduction of capital gains tax on investments made by Mauritius-based entities in India. Previously, capital gains on the sale of shares in Indian companies by Mauritian residents were exempt from tax in India.
• Transition period: The amendment provided for a transition period from April 1, 2017, to March 31, 2019, during which capital gains tax on investments made by Mauritius-based entities in India was phased in gradually.
• Tax rates: During the transition period, the capital gains tax rate was set at 50% of the domestic tax rate in India. This rate gradually increased to 100% of the domestic tax rate by April 1, 2019.
• Grandfathering clause: The amendment also included a grandfathering clause to protect existing investments made by Mauritius-based entities in India before April 1, 2017. These investments were allowed to continue to enjoy the tax benefits under the original tax treaty.
• Anti-abuse provisions: The amendment also included anti-abuse provisions to prevent the misuse of the treaty for tax evasion purposes. These provisions aimed to ensure that the treaty benefits were only available to genuine investors and not to those seeking to avoid tax obligations.
• Impact on investors: The amendment had a significant impact on investors who had previously used the Mauritius route to invest in India. Many investors had to restructure their investments to comply with the new tax regulations and avoid potential tax liabilities.
• Bilateral relations: The amendment to the India-Mauritius tax treaty was seen as a positive step towards strengthening bilateral relations between the two countries. It demonstrated India's commitment to combating tax evasion and promoting transparency in tax matters.
• Future outlook: The amendment to the tax treaty was expected to have a long-term positive impact on bilateral trade and investment between India and Mauritius. It was also a reflection of the evolving global tax landscape and the need for countries to cooperate in addressing tax evasion and avoidance.