India: Investments From Mauritius Excluded From New Tax Rules

Those who invest in India through Mauritius and Singapore may feel relieved. The provisions of the General Anti-Avoidance Rules (GAAR) would not apply to their investment in the Greater Peninsula.

The Indian government has also spared the institutional investors who travel by offshore jurisdictions, if they prove they are registered in these jurisdictions.

A circular dated a decade prohibited the Indian tax authorities investigate the regularity of an investor who claims to be resident in Mauritius, enabling it to benefit from the provisions of the Treaty of double taxation. The Indian Ministry of Finance plans to give precedence to the GAAR in relation to this circular. It seems that it might abandon this option.

"Our relationship with Maurice cause a shortfall, but we offer other benefits. Maurice is a good ally of India since long. In addition, India needs foreign investment, "said one part of the Indian Ministry of Finance Journalist of Business Standard. He added that it will be difficult to withdraw the circular letter, because of strategic interests of the Great Peninsula. "Maurice was a judgment of the Supreme Court (India) in its favor on this issue," said the official.

The GAAR can be applied in cases of countries that have a treaty with India to double taxation and there is the Limitation of Benefits (LoB) clause. This is for the Non-Double Taxation between India and Singapore. LoB clause provides a constraint for investors who benefit from the provisions of the Treaty. Thus, abuses are prevented.

"If the LOB clause exists in the treaty, the GAAR does not apply. If the investor costs in Singapore, we believe it is really a resident of this country, "the official added. However, the Indian government would reserve the right to use the GAAR, in exceptional cases. For example, it is clear that the investor is an abuse of the treaty.

The official said that institutional investors such as money, pay no tax on capital gains even if their investments are made through jurisdictions with low tax rates. The Indian tax authorities will verify the information provided. If it turns out that the company had been created solely to avoid paying the tax, then it will be taxable.