3 August, 2016
Protocol to India-Mauritius Double Taxation Avoidance Agreement Withdrawing Capital Gains Tax Exemption
The Government of India (‘GoI’) and Government of Mauritius signed a protocol dat- ed May 10, 2016, amending the Protocol to the India – Mauritius Double Taxation Avoidance Agreement, which, inter alia, provides for:
i. Withdrawal of the capital gains tax exemption available to Mauritian residents with respect to shares in Indian resident companies acquired on or after April 1, 2017 in a phased manner as follows:
• Capital gains arising on or after April 1, 2017 till March 31, 2019 (‘Transition Pe-
riod’) will be taxed at 50% of the applicable Indian domestic tax rate subject to fulfilment of certain conditions; and
• Capital gains arising after the Transition Period will be taxed in India as per In- dia’s full domestic tax rate;
ii. Introduction of concepts of ‘service permanent establishment’, fee for technical services sourced in India and derived by Mauritian residents to be taxed at the rate of 10% on gross basis, and income in the nature of ‘other income’ of a Mauritian resident to be taxed as per India’s domestic tax laws.
Press Release on New Indo- Cyprus Double Taxation Avoidance Agreement
GoI by way of a Press Release dated July 1, 2016 announced its in-principle agreement with the Government of Cyprus regarding finalisation of the New Indo-Cyprus Double Taxation Avoidance Agreement, which, inter alia, provides for source based taxation of capital gains with a grandfathering clause for investments made prior to April 1, 2017, in respect of which, capital gains would be taxed in the country where the taxpayer is resident. It was further agreed that India will consider rescinding the notification declaring Cyprus as a Notified Jurisdictional Area under section 94A of the Income-tax Act, 1961, with retrospective effect.
Amendment of Rules for Application of General Anti Avoidance Rule
The Central Board of Direct Taxes has amended Rule 10U of the Income-tax Rules, 1962 (‘Rules’) regarding application of General Anti Avoidance Rule (‘GAAR’), whereby any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investments made by such person before April 1, 2017 will be grandfathered and not be subject to GAAR (such date previously being August 30, 2010). Fur- ther, GAAR will apply to any arrangement, irrespective of the date on which it was entered, with respect to the tax benefit obtained from such arrangement on or after April 1, 2017 (such date previously being April 1, 2015).
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
