DOUBLE TAX AVOIDANCE
AGREEMENT - INTERNATIONAL RELATIONS
News: India, Mauritius amend double
taxation avoidance pact
What's in the news?
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Recently, India and Mauritius have amended their
Double Taxation Avoidance Agreement (DTAA).
Amended India Mauritius
Tax Treaty – Key Highlights:
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The amended pact has included the Principal Purpose Test (PPT), which
essentially lays out the condition that the tax benefits under the treaty will
not be applicable if it is established that obtaining that duty benefit was the
principal purpose of any transaction or arrangement.
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Mauritius has been a preferred jurisdiction for
investments in India due to the non-taxability of capital gains from the sale
of shares in Indian companies until 2016.
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Mauritius remains India’s fourth largest source of FPI investments, after
the US, Singapore, and Luxembourg.
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FPI investment from Mauritius stood at Rs 4.19 lakh
crore at the end of March 2024.
Double Taxation
Avoidance Agreement (DTAA):
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A Double Taxation Avoidance Agreement (DTAA) is a
pact signed by two nations that encourages capital
investment, trade in goods and services, and other economic activities
between the two nations by preventing International Double Taxation.
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Depending on the types of businesses/holdings that
citizens of one country have in another, the DTAA may either cover all types of
income or may focus on a particular type of income.
Double Taxation:
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Double taxation is a tax principle referring to
instances where taxes are levied twice
on the same source of income.
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It can occur when income is taxed at both the corporate level and the personal
level.
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Double taxation can also occur in an international
trade or investment context when the same income is taxed in two different
countries.
Benefits of Double
Taxation Avoidance Agreement (DTAA):
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Deduction: Taxpayers can claim the taxes paid to foreign
governments as a deduction in the country of residence.
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Exemption: Tax relief under this method can be claimed in any
one of the two countries.
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Tax Credit: Tax relief under this method can be claimed in the
country of residence.
Significance:
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The recent amendment to the India Mauritius Tax
Treaty reflects India’s intent to align with global efforts against treaty
abuse, particularly under the BEPS framework.