Finally, after many years of discussions, India has decided to change its double-taxation treaty (DTT) laws with the Republic of Mauritius.
The current treaty exempts investors in Mauritius from being charged Indian capital gains tax (CGT) on the disposals of shares in Indian based companies. As a result of this, a large percentage of Indian foreign direct investment has to go through Mauritius based companies. Over the last 15 years, Mauritius has sourced 34% of its total foreign direct investment from this income, equaling USD $94 billion.
A large proportion of this investment originates from Indian companies, which then permits Indian-based investors to avoid paying CGT on their own companies located in India, causing a huge loss to the economy.
Delhi has always tried to implement changes to stop this regime, by what is being dubbed as round-tripping which is abusing the current double-taxation treaty. The amendment will apply taxation of share disposals to the actual source from now own, for any amounts acquired on or after the April 1st 2017 for all resident companies in India, coming into full force from the fiscal year 2017–2018.
After the success in this area, experts predict that India will also try to renegotiate its DTT with Cyprus in the same way in the not too distant future.