Mauritius Tax Treaty- India and Mauritius agreed to amend their  old tax treaty in Port Louis.

Key Changes

India gets the right to tax capital gains arising from transfer of shares of Indian resident companies. In the older version of the tax treaty, only Mauritius had the right to tax capital gains by companies investing in India from that country. However, tax on capital gains was nearly zero in Mauritius, making it an attractive destination for investors looking to invest in India.

The amended tax treaty also has a limitation of benefit clause that requires companies based in Mauritius to spend at least Rs.27 lakh in the preceding one year to benefit from the tax treaty. There was no such clause earlier.

The amendment clearly states that all investments made before 1 April 2017 will not be liable to be taxed in India. This means that even if investors who have brought shares in Indian companies before 1 April 2017 decide to sell these shares after this date, the capital gains accruing to them will not be taxed in India.

For investments made after 1 April 2017, the new version of the treaty provides for a tax concession for two years in the transition phase. Investors will have to pay only 50% of the applicable capital gains tax till 2018-19.

The amendment to the India Mauritius tax treaty also automatically applies to the India-Singapore tax agreement.

It will impact private equity and venture capital investors who typically invest in unlisted securities as they will now be liable to pay capital gains tax in India. Foreign portfolio investors (FPIs) who invest in listed securities but exit before 12 months will also get hit as they will have to pay short-term capital gains tax in India.

Only those investors who invest in listed securities and remain invested for more than 12 months will not have a tax burden in India. This is because long-term capital gains tax is zero per cent in these cases.