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Mauritius, Singapore investments now fully taxable for capital gains

NEW DELHI: Starting 1 April, capital gains on investments made in India through companies in Mauritius and Singapore will become fully taxable, as concessions cease to exist on the route, long seen as a tax-efficient way of investing in Asia’s third largest economy.
 
FY20 will be the first year after a two-year transition period, since India amended its double tax avoidance agreements (DTAA) with these countries in 2016, to prevent aggressive corporate tax avoidance.
 
The loophole in these tax treaties had led to a situation where gains from investments into India from the two countries were taxed neither in India nor in the country where the investing entity was located. The treaty that was meant to avoid double taxation of the same income in two countries had resulted in what tax officials call ‘double non-taxation’ of the income.
 
What made India take serious efforts to correct the situation was the concern that at least a part of the foreign direct investments (FDI) coming into India and enjoying the tax treaty benefits were profits that were never reported to the authorities for taxation here, and were laundered abroad, to be brought back dressed up as FDI.
 
Experts said the changes and the applicability of tax have not affected India’s ability to attract investments. “Investors have factored in the higher tax into their calculations. The increased tax incidence has not dented India’s attractiveness as an FDI destination. Investors see commercial reasons in investing in India," said Amit Maheshwari, partner, Ashok Maheshwary and Associates Llp, a chartered accountancy.
 
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