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Sunday, August 28, 2011


Most of the investigations related to financial scams in India usually hits the wall of Mauritius channel. In this post, let us check how investors in India, business class in India, and foreign investors are using this channel of Mauritius to avoid paying tax in India. Mauritius channel helps to evade paying taxes in India amounting to crores of rupees with the help of loopholes in a bilateral agreement on double taxation.

Double Taxation Avoidance Agreements

double taxation avoidance India has Double Taxation Avoidance Agreements (DTAA) with many countries. Double Taxation Avoidance Agreements is generally meant by the process of exempting agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country.

Income Tax Act 1961 of India, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kind of taxpayers.


No tax for Foreign Institutional Investors operating from Mauritius

Many foreign institutional investors in India, who trade on the Indian stock markets operate from Mauritius. According to the provisions of a two-decade-old bilateral agreement, the Double Taxation Avoidance Convention (DTAC), capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. The most funny fact is that there is no capital gains tax in Mauritius. So the foreign institution operating from Mauritius will gain a lot by escape tax.

Another similar treaty, is the Indian and Cypriot tax treaty that provides almost same beneficial treatment of capital gains.

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