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

NEW DELHI: 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.

Also read: Capital gains provision will apply if the source is India: Revenue Secretary Hasmukh Adhia

“We will start negotiations with them soon,” said a senior government official. 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.

The Singapore treaty also stands to lose the benefit it has hitherto enjoyed because of the changes.

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.

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.


A resident entity would be deemed a shell or conduit company if total expenditure in Mauritius is less than Rs 27 lakh (1.5 million Mauritian rupees) in the preceding 12 months.

The India-Singapore tax treaty already has an LoB clause that makes investments of S$100,000 mandatory. “LoB limits that are there in the India-Singapore treaty should not change but the remaining dispensation should apply to them (50% of domestic tax rate),” said Revenue Secretary Hasmukh Adhia. But, tax experts favour a new protocol for clarity. This would make renegotiation imperative as Singapore wouldn’t like to lose out on the 50% exemption, they say. The government should enter into a protocol with Singapore to amend the treaty, said EY Partner Sudhir Kapadia, endorsing the approach.

“It should be clarified that the reduced 50% of normal rate for the transition period between April 2017 and April 2019 should also be applicable under Singapore treaty,” he suggested. “Since Singapore treaty always had the capital gains exemption in respect of debt securities (even before the capital gains exemption on shares was introduced), it needs to be clarified that the amendment will only apply to shares and not debt securities.” “From 1996, India has been trying to renegotiate that ( Mauritius treaty). In last one year we had four rounds of discussions.

We have been able to renegotiate,” Finance Minister Arun Jaitley said in his reply to the discussion on the Budget in the Rajya Sabha. “And as part of the renegotiation, we are phasing out some of those aspects and hopefully the fears which members had that the route can partly be also used for round-tripping (will be addressed),” he said, adding that the current investments have been grandfathered.

“In an effort against black money, we have even gone ahead and tried to minimise the dangers of that particular situation.”