Finance Minister P Chidambaram on Wednesday said the government is reviewing the tax treaty with Mauritius to prevent misuse and to strengthen tax information exchange mechanism between the two nations.
"Government has proposed to review the India-Mauritius Double Taxation Avoidance Convention (DTAC) bilaterally to incorporate appropriate changes in the DTAC for prevention of treaty abuse and to strengthen the mechanism for exchange of information on tax matter between India and Mauritius," Finance Minister P Chidambaram informed the Lok Sabha (Lower House of the Parliament of India) in a written reply.
A Joint Working Group (JWG) comprising members from the Government of India and the Government of Mauritius was constituted in 2006 to put in place adequate safeguards to prevent misuse of DTAC, he said.
Eight rounds of discussions have taken place so far, he said, adding that consistent efforts are being made by the Indian government to find mutually acceptable solution for addressing India's concerns.
The existing DTAC between India and Mauritius was notified in 1983. India-Mauritius DTAC provides for taxation of capital gains arising from alienation of shares only in the country of residence of the investor.
Capital gains are fully exempt from taxation in Mauritius under its domestic laws.
Thus an investor routing his investment through Mauritius into India does not pay capital gains tax either in India or Mauritius, he said.
Mauritius thus has become an attractive route for investment by the third country residents into India through treaty abuse, he added.