After Mauritius tax treaty, government looking to rework pact with Singapore.

After successfully amending the 33-year-old India-Mauritius tax treaty to prevent loss of revenue and round-tripping, New Delhi is now looking to start talks with Singapore to tweak the double taxation avoidance agreement (DTAA) with the nation to plug any similar leakages.

Singapore is the second-biggest source for foreign direct investments (FDI) into India after Mauritius, accounting for over 16% of cumulative inflows so far."We will start negotiations with them soon." Changing the accord will put an end to confusion over the bilateral tax treaty between India and Singapore.

The capital gains tax benefit under this agreement is linked to the capital gains tax provision in the India-Mauritius tax treaty. However, this parity is not automatic and the India-Singapore treaty will have to be amended to clearly spell out the changes. The government on Tuesday announced a revamped India-Mauritius treaty that will essentially mean capital gains on investments made in India through Mauritius will get fully taxed here from April 1, 2019. 

There have been concerns expressed over the impact of the amendment to the India-Mauritius treaty on investments from Singapore, particularly in the two-year transition phase that provides for a 50% exemption in respect of the domestic tax rate if specified conditions are met. These conditions, spelled out in the new Limitation of Benefit (LoB) clause in the India-Mauritius tax treaty, make investments of at least Rs 27 lakh mandatory in the island nation to qualify for the lower rate.

But since it's an international protocol and New Delhi is keen to provide stability and certainty to investors, the government is keen on renegotiating it and incorporating clear provisions upfront in the treaty with Singapore, an important financial centre for investments into the country. "There should not be any issue in renegotiating the treaty," said the official cited above.

Source(Economic times)