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Amendment of India Mauritius Tax Treaty (DTAA)

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

PRESS RELEASE

New Delhi, 10th May, 2016

Subject: Protocol for amendment of the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains between India and Mauritius – reg

1.The Protocol for amendment of the Convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income and capital gains between India
and Mauritius was signed by both countries on 10th May, 2016 at Port Louis, Mauritius. The
key features of the Protocol are as under:

i. Source-based taxation of capital gains on shares: With this Protocol, India gets taxation rights
on capital gains arising from alienation of shares acquired on or after 1st April, 2017 in a
company resident in India with effect from financial year 2017-18, while simultaneously
protection to investments in shares acquired before 1st April, 2017 has also been provided.
Further, in respect of such capital gains arising during the transition period from 1st April,
2017 to 31st March, 2019, the tax rate will be limited to 50% of the domestic tax rate of India,
subject to the fulfillment of the conditions in the Limitation of Benefits Article. Taxation in
India at full domestic tax rate will take place from financial year 2019-20 onwards.

ii. Limitation of Benefits (LOB): The benefit of 50% reduction in tax rate during the transition
period from 1st April, 2017 to 31st March, 2019 shall be subject to LOB Article, whereby a
resident of Mauritius (including a shell / conduit company) will not be entitled to benefits of
50% reduction in tax rate, if it fails the main purpose test and bonafide business test. A
resident is deemed to be a shell/ conduit company, if its total expenditure on operations in
Mauritius is less than Rs. 2,700,000 (Mauritian Rupees 1,500,000) in the immediately
preceding 12 months.

iii Source-based taxation of interest income of banks: Interest arising in India to Mauritian
resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt
claims or loans made after 31st March, 2017. However, interest income of Mauritian resident
banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from
tax in India.

iv The Protocol also provides for updation of Exchange of Information Article as per
international standard, provision for assistance in collection of taxes, source-based taxation of
other income, amongst other changes.

2. Major impact: The Protocol will tackle the long pending issues of treaty abuse and round
tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double nontaxation,
streamline the flow of investment and stimulate the flow of exchange of information
between India and Mauritius. It will improve transparency in tax matters and will help curb tax
evasion and tax avoidance. At the same time, existing investments, i.e. investments made before
1.4.2017 have been grand-fathered and will not be subject to capital gains taxation in India.

(Meenakshi J Goswami)
Commissioner of Income Tax
(Media and Technical Policy)
Official Spokesperson, CBDT.

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