Double Tax Avoidance Agreement India Mauritius: An Overview
India and Mauritius share a long-standing relationship in terms of trade and investment. In recent years, Mauritius has emerged as one of the preferred destinations for Indian companies to invest in due to its favorable tax regime. One of the key factors that have contributed to this is the Double Tax Avoidance Agreement (DTAA) signed between these two countries.
What is the Double Tax Avoidance Agreement?
DTAA is a bilateral agreement signed between two countries that aims to avoid double taxation of the same income. In other words, it ensures that an individual or a company does not have to pay taxes twice on the same income in both countries. The agreement specifies the tax rates applicable in each country, the type of income that will be taxed, and the conditions under which tax exemptions or credits can be claimed.
The India-Mauritius DTAA was signed in 1982 and came into force in 1983. It has been amended twice, in 1996 and 2016, to align with the changing economic and business landscape. The agreement covers taxes on income and capital gains.
How does the DTAA benefit Indian companies?
The DTAA has been a game-changer for Indian companies that invest in Mauritius. It has provided them with a tax-efficient route to invest in Mauritius and other countries that have a DTAA with India. Some of the key benefits include:
1. Lower tax rates: The agreement specifies lower tax rates for dividends, interest, and royalties. For instance, the tax rate on dividends is capped at 5% in Mauritius, while it is 10% in India. This means that Indian companies can save on taxes by routing their investments through Mauritius.
2. Capital gains tax exemption: The DTAA provides an exemption from capital gains tax in Mauritius on the sale of shares of Indian companies. This has made Mauritius a popular destination for investments in Indian companies.
3. Arbitration mechanism: The agreement provides for an arbitration mechanism to resolve disputes between the two countries. This has provided investors with a sense of security and confidence.
Revised DTAA: What has changed?
In 2016, India and Mauritius signed a revised DTAA to further strengthen their economic ties. The key changes introduced in the revised agreement are as follows:
1. Capital gains tax: The revised DTAA provides for the taxation of capital gains arising on the sale of shares acquired on or after April 1, 2017. The tax rate is 50% of the applicable Indian tax rate for the next two years, followed by the full rate from April 1, 2019. However, shares acquired before April 1, 2017, continue to be exempt from capital gains tax.
2. Source-based taxation: The revised DTAA provides for the taxation of interest income in the country where it arises. This means that the interest income earned by Mauritian residents from India will be subject to tax in India.
The India-Mauritius DTAA has been an essential tool for Indian companies looking to invest in Mauritius and other countries. It has provided them with a tax-efficient route, which has helped them in expanding their businesses globally. With the revised agreement, India and Mauritius have further strengthened their economic ties and created a favorable environment for investment and trade between the two countries.