The finance ministry on Monday ruled out imposing capital gains tax on investment routed to India through Mauritius, in an apparent move aimed at allaying investors’ fears that sent bourses into a panic mode.
“How can you do that (imposing capital gains tax)? There has to be some agreement on that. Right now, it is not there in the agreement. You cannot impose it arbitrarily,” finance secretary Sunil Mitra told PTI.
Government sources told HT that there was was nothing concrete as of now on the double taxation avoidance agreement (DTAA) between the two nations and no fresh dates have been fixed to commence negotiations.
The last round of negotiations took place in 2008.
Mauritius is India’s largest source of foreign direct investment (FDI), accounting for 43% of the total FDI into the country.
The problem arises because of “round tripping” or “treaty shopping” by Indian entities moving money out of the country and then getting it back into India. Round tripping refers to routing of investments by a resident of one country through the other country back to his own country.