India and Mauritius on Tuesday signed an amendment to a long-standing tax treaty between the two countries, which will prevent businesses from misusing its provisions to avoid paying their dues. According to the new amendment, an Indian company that is registered in Mauritius will have to pay India’s capital gains tax of 10% if the company is sold after April 1, 2017. Earlier, such companies had to pay capital gains taxes only in Mauritius, but there is no such levy there. This meant Indian companies could get away without paying any capital gains taxes. These taxes are usually levied when a large asset is sold.
The amendment stipulates that 50% of the capital gains tax is applicable if a company is sold between April 1, 2017, and March 31, 2019. After that, 100% of the tax amount will be due. The Finance Ministry believes the amendment to the Double Taxation Avoidance Convention will prevent “revenue loss and double non-taxation”. Revenue Secretary Hasmukh Adhia said the move “brings about a certainty in taxation matters for foreign investors,” PTI reported.
The two countries signed the DTAC in 1983, when Mauritius was a major foreign direct investment player in India. However, India has been arguing that many businesses use the treaty to avoid paying domestic taxes.
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