Tweaking the Mauritius route

Rohan Shah and Vidushi Maheshwari at Economic Laws Practice analyse what lies ahead

The double taxation avoidance agreement (DTAA) between India and Mauritius has applied from the assessment year 1983-84. The key benefit under it is an exemption from capital gains tax (both long-term and short-term) in India for Mauritius residents and there have been several disputes in this regard. After a lengthy process of negotiation, on 10 May the two governments signed a protocol to amend the DTAA. It aims to counter issues relating to treaty abuse, litigation, double non-taxation, and revenue loss, as well as to bring clarity.

The protocol amends provisions relating to permanent establishment, interest, fees for technical services, other income, limitation of benefit (LOB) and crucially, capital gains.

DIFFERENT SCENARIOS

• Shares acquired prior to 1 April 2017 and sold at any time: Benefit of the DTAA available i.e. grandfathering.
• Shares acquired and sold between 1 April 2017 and 31 March 2019: Taxable in India at 50% of the domestic tax rate, subject to LOB.
• Shares acquired on or after 1 April 2017 and sold after 31 March 2019: Taxable in India at the domestic rate (40% for short term and 10% for long term).

ROHAN SHAH is the managing partner of Economic Laws Practice Advocates & Solicitors, where Vidushi Maheshwari is a senior associate. This article does not constitute a legal opinion or advice.