| ? I think most of us know WHAT IS | | | | investments are routed through Mauritius.Under the |
| DTAA? | | | | current DTAA, companies incorporated in Mauritius are |
| DOUBLE TAXATION AVOIDANCE AGREEMENT as | | | | considered "residents" of Mauritius for taxation |
| the name suggest is an agreement between two | | | | purposes.The provision has been misused by some, |
| countries for the avoidance of double taxation. Double | | | | which have formed conduit companies to avoid paying |
| taxation on single source earned by a person is | | | | tax in India. |
| possible under income-tax, as taxation depends not on | | | | Loss to government |
| citizenship, but on residential status. The Central | | | | The losses to the exchequer on account of lost capital |
| Government enters into DTAAs with other countries | | | | gains tax in the last decade would amount to a |
| to encourage flow of foreign capital and technology. | | | | whopping Rs.28,139 crores. The average annual loss to |
| The main purpose of any DTAA is mitigating the | | | | the exchequer amounts to over Rs.2,300 crores. The |
| hardship caused by dual taxation on the same source | | | | extent of lost revenues could easily have saved |
| of income. | | | | companies such as Balco, VSNL, IPCL and several |
| Capital gain | | | | others from being sold off to private parties. |
| ? Capital Gains under most of the data is | | | | What is being done? |
| taxed in the state where the capital asset is situated | | | | ? Changes /modification is being made in |
| at the time of sale. | | | | the DTAAs. |
| Tax heaven | | | | ? Recently there was modification made |
| A tax haven is a place or state where certain taxes | | | | in the capital gain clause of Indo-Cyprus Double |
| are levied at a low rate or not at all.Mauritius, Cyprus, | | | | Taxation Avoidance Agreement.The double taxation |
| Luxemburg are some of the tax heavens. These Tax | | | | avoidance agreement (DTAA) between the two |
| Heavens does not impose capital gains tax on its | | | | countries is all set to lose the capital gains tax |
| residents, and with India exempting the capital gains | | | | exemption benefit. Both the governments are |
| under the DTAA, investors could avail of the benefits. | | | | understood to have concluded negotiations on |
| The dividend income is also exempt from withholding | | | | amendments to the tax treaty, following which |
| tax. | | | | residents, both individuals and companies of Cyprus, |
| Taxation of capital gain under income tax act | | | | would have to pay capital gains tax at the rate of 10%. |
| ? The long-term capital gains tax, applicable | | | | A limitation on benefits clause to ensure ineligible |
| on investments sold after holding them for more than | | | | entities cannot get a benefit under the tax treaty is |
| a year, is at the rate of 10 per cent. Short-term rates | | | | also proposed to be inserted |
| are applied at the rate of 30 per cent when | | | | ? The Indian Cabinet has approved a |
| investments are liquidated. | | | | similar agreement with the Grand Duchy of |
| Mauritius route | | | | Luxembourg. |
| ? It is well known that the bulk of the FII | | | | |