Does Indo-Mauritius Double taxation amendments effect Indian stock markets?
Sell, Sell, Sell !!! this is what some of the investors spreading rumors in the stock market when Indo-Mauritius double taxation agreement amendments suggested couple of days back. The center has handled it in an efficient way on making changes to Indo-Mauritius agreement where stock markets had fallen 1% on Wed. What are the amendments to Indo-Mauritius double taxation agreement? How does it impact investors of Mauritius? Does it affect Indian stock markets?
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What is existing Indo-Mauritius Tax agreement?
Loopholes in Indo-Mauritius double taxation agreement was an issue for the past couple of decades. This was a loosely created agreement where investors from Mauritius can pay zero tax on capital gains arising in India. E.g. if an investor investing in Indian company has capital gains, they need not pay tax in India. However, they need to pay tax as per Mauritius tax laws. Since as per Mauritius tax laws, capital gains tax is zero, many investors are taking this agreement as an advantage for avoiding of tax.
What amendments done in Indo-Mauritius double taxation agreement now?
The change is that if any capital gains arising in India, it would be taxed in India. Investors from Mauritius therefore, comes under capital gains taxation net. Govt. of India has managed it very efficiently. Below are the amendments to Indo-Mauritius Double Taxation agreement.
1) These amendments are effective from 1st April, 2017. Means, any Mauritius investor investing after 1st April, 2017, these guidelines would apply. Existing investors or investors who wish to buy shares in companies by 31st March, 2017, would not be taxed as per new amendments.
2) Companies operating in Mauritius can spend Rs 27 Lakh as operating expenses and pay 7.5% short term capital gains tax in India for the capital gains tax arising from shares purchased between 1st April, 2017 to 31st March, 2019. If any long term capital gains are raised, the tax would be zero.
3) From Apr-2019 onwards, investors can decide their investments based on tax rates applicable at that time in India.
4) The Singapore tax treaty is linked to Mauritius tax treaty, hence it would also get impacted.
Does the Govt. of India gets higher taxes due this agreement?
This tax is payable by Mauritius investors for short term capital gains. Indian stock markets are not providing that good returns in the short term. We are seeing SENSEX in the range bound of 25,000 to 27,000 points in last 2-3 years. Hence it is unlikely that Govt. of India would get the biggest benefit out by way of higher taxes due to this amendment to Indo-Mauritius double taxation agreement. These amendments would work more to plug-in loopholes to stop black money flow to Indian stock markets.
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How Indian Stock markets reacted to this?
Many investors felt that this is a negative move by Govt. of India and felt that stock markets would take deep correction. Since Centre has handled efficiently by providing time till next 1 year and exempting from existing shareholders, stock markets took a beating of less than 1% on Wed and recovered 200 points on Thursday. Hence, I feel there would not have much in Indian stock markets as the Centre has handled this efficiently.
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Indo-Mauritius Double taxation amendments