India and Mauritius have amendment in their DTAA.

 Hello and I welcome you all at Global affairs. Recently India and Mauritius have amended their double taxation avoidance agreement (DTAA). Due to which one billion dollars were withdrawal from the Indian stock market due to which the Sensex fell by 800 points.

After the amendment in the DTAA  between India and Mauritius, the movement in the Indian stock market increased, after which the government of India had to clarify  that these amendments have not been notified yet.

What is the DTAA ?

India and Mauritius come to a unanimous decision in 1983, to avoidance of double taxation, behind this the main objective was to promote bilateral economic relations and investment between India and Mauritius by giving tax certainty and reducing tax barriers.

The main objective behind this was that no investor would have to pay separate taxes first in Mauritius and then in India.

What amendments have been made in DTAA and why?

The Indian government has noticed that some people are taking wrong advantage of DTAA, primarily they are residents of some other country but are establishing a fake branch of their company in Mauritius and investing through it. Even though they are not residents of this country.

Now through this amendment the authority and authenticity of the applicant will be checked better, so that a investor from another country does not take unfair advantage of this agreement.

Why DTAA is so important for India?

The DTAA was a major reason for a large number of FPI and foreign entities to route their investments in India through Mauritius, As there was no capital gains tax on sale transfer of shares.

Mauritius remains India's 4th largest source of FPI investments, after the US, Singapore and Luxembourg.

FPI investment from Mauritius stood at Rs 4. 19 lakh crore at the end of March 2024, which is 6%  of the total FPI investment of RS 69.54 lakh crore in India.

According to new amendments all FPI  will have to examine whether they have enough commercial rationale to be based in Mauritius when the tax scrutiny  happens.

If they can convince tax authorities about their presence in Mauritius, the tax exemption should continue for them.

Thanks for reading.