Tax advantages
The tax benefits for investors from Mauritius operating in India are slated for substantial reduction as the two nations have signed a protocol to amend their bilateral Double Taxation Avoidance Agreement (DTAA). The agreement, inked by both parties on March 7 in Port Louis — a copy of which has been obtained by FE — marks a groundbreaking development for New Delhi.
Effectively, this amendment will lead to the withdrawal of tax exemptions on various types of income such as dividends, royalties, technical fees, etc., for investors and traders from Mauritius. Additionally, Indian High Net Worth Individuals (HNIs) utilizing the Mauritius route for tax evasion will also feel the impact.
With these changes in place, it is clear that the government intends to dissuade tax advantages planning or tax advantages avoidance activities and wants the investments to come to India through home countries directly, experts added.
“The latest Protocol to the India-Mauritius Double Taxation Avoidance Agreement (DTAA), including the Principal Purpose Test (PPT), signifies India’s step towards harmonizing with international initiatives aimed at combating treaty abuse, notably under the BEPS Action 6 framework. Rakesh Nangia, Chairman of Nangia Andersen India, commented, “The incorporation of the PPT is intended to limit tax evasion by ensuring that treaty benefits are exclusively extended to transactions with genuine purposes.”
However, he pointed out that the application of the Principal Purpose Test (PPT) to investments that are grandfathered still lacks clarity, underscoring the necessity for clear guidance from the Central Board of Direct Taxes.
