NEW DELHI, Apr 22: Concerned over misuse of the Indo-Mauritius tax treaty, a Finance Ministry official has said India will press for its right to tax capital gains at the ongoing talks for revision of the Double Taxation Avoidance Agreement (DTAA).
“We want changes (in the Indo-Mauritius DTAA) pertaining to capital gains tax…If they (companies) made capital gain in India, then India should have right to tax,” Finance Secretary R S Gujral told.
Mauritius, however, has been insisting on the right to impose tax on investments being routed through the island nation.
“They have right to tax but they are not taxing. Then it becomes no taxation anywhere. We have been telling that this treaty is being misused. They are saying don’t amend the treaty and they will ensure that there will be no misuse,” he added.
The difference in approach on levying capital gains has delayed conclusion of the bilateral talks to revise the Indo-Mauritius DTTA which has been going on for the past four-five years.
According to the existing Indo-Mauritius DTAA, capital gains tax is chargeable by the country where the company is resident.
As Mauritius does not levy capital gains tax, the provision has encouraged round-tripping of investments, meaning that funds generated in India are reinvested back to the country after routing them through the island nation.
Earlier,India and Mauritius had agreed to review the operations of the Joint Working Group (JWG), which was set up in 2006 to strengthen the mechanism for exchange of information under the India-Mauritius tax treaty, besides putting in place adequate safeguards to prevent misuse of the DTAA which came into effect in 1983. (PTI)