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1. Sets roadmap for future taxation

• India has signed the amendment to its DTAA treaty with Mauritius.• This amendment provides for a gradual phase out of capital gains tax benefits that the

Mauritius based entities currently derive on investments made in shares of an Indian resident company; while grandfathering the applicability on investments made till FY17.

• This we believe is a step in the right direction as it paves way for a clear & well defined tax regime prospectively.

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Currently, capital gain on sale of equity shares in India through stock exchanges on payment of STT is

(a) exempted for long term investments, and (b) chargeable at the rate of 15% for short term investments. The present DTAA with Mauritius restricts India to levy capital gain tax on Mauritius based entities for their transactions in India

2. Mauritius based entities currently benefit on capital gains taxation under DTAA

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With an intent to prevent fiscal evasion with respect to taxes on income and capital gain, the DTAA with Mauritius has been amended today which provides

India with the taxing powers on capital gains arising on alienation of shares acquired after April1, 2017.

3. Amendment set to phase out benefits gradually

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• Prior to March 31, 2017 will be grandfathered • During April 1, 2017 to Mar 31, 2019 to be subject to concessional (50% of the

normal tax) rate , and• After April 1, 2019 will be taxed as per the normal tax rates.

Further, the amendment provides that the benefit of concessional tax rate (for investments made in FY18 and FY19) for Mauritius based resident will be available only if they qualify the main purpose test and bonafide business test.

4. The amendment provides for all investments made:

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We believe that this is a step in the right direction as the intent to levy taxation is only on prospective basis thereby grandfathering any investments made till FY17. This will also help in providing a well-defined tax regime for future taxation

5. Provides clarity and well defined tax regime

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Exhibit 1: Prospective capital gain tax rates for Mauritius based entities

Investment made Taxation

Before March 31, 2017 - Nil - As per current rules

Between April 1, 2017 To

March 31, 2019

- STCG: 7.5% (50% of tax domestic tax Liability)- LTCG: Exempt

After March 31, 2019 - STCG: 15%- LTCG: Exempt

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This protocol will also impact the exemption under the India-Singapore Double Taxation Avoidance Treaty (“India Singapore DTAA”) as the protocol to the India-Singapore DTAA specifically states that the benefit of capital gains exemption would be available so long as the India Mauritius DTAA provides the capital gains exemption”.

Impact on the Singapore treaty

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