The Centre is likely to provide provisions for grandfathering and a transition period in the re-negotiated tax avoidance pact with Singapore in line with those provided in the amended treaty with Mauritius.
“The effort will be to keep the treaty in line with the India-Mauritius Double Tax Avoidance Agreement. All renegotiated provisions in the Mauritius pact will be provided in the Singapore treaty too,” said an official close to the development.
The government is likely to approach Singapore soon for a re-signing of the treaty and officials are hopeful that it will be done by the end of the fiscal. Investors have been concerned on whether investments routed through Singapore to India will lose tax benefits after the government plugged loopholes in the DTAA with Mauritius.
The amended pact with Mauritius provides for exempting all investments made up to March 31, 2017 from capital gains tax in India. It also provides for a transition period between April 1, 2017 and March 31, 2019 during which the capital gains tax rate will be 50 per cent of the normal rate.
Singapore is one of the largest sources of foreign direct investment to India and had beaten Mauritius as the top spot between April and September 2015 bringing in $6.69 billion in FDI.
While the Finance Ministry had said the pact with Singapore too will have to be re-signed, investors have been questioning what kind of a transition would be made available.
Finance Minister Arun Jaitley too hoped for a timely renegotiation of the India-Singapore DTAA.
“Singapore a separate sovereign state. It (Mauritius treaty) does not ipso facto automatically extend. The principles will have to be applied, but applied through a process of renegotiation,” he said at an event by the Indian Women’s Press Corps on Monday.
Tax experts said the move will maintain parity between the two treaties.
“The Mauritius and Singapore treaties are intertwined. Anything which disturbs the Mauritius treaty will also impact the Singapore treaty. The government’s plan to grandfather investments under the Singapore treaty similar to the proposed Mauritius protocol is laudable and infuses a sense of equity. Bringing an amended treaty for Singapore will bring clarity and eliminate interpretive speculation,” said Jayesh Sanghvi, National Leader, International Tax Services, EY.