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Most foreign institutional investors have not been paying taxes in India, thanks largely to the benefits available under the India-Mauritius DTAA.
It has been a win-win situation for them irrespective of whether their incomes here were characterised as capital gains or business incomes. But now this benefit is under threat with both countries looking to revise the treaty.
“Tax treaties are bilateral agreements. They are entered into by two sovereigns and therefore any amendment or modification requires consensus. Therefore unilateral change is not possible,” Mr Aseem Chawla, Partner, Amarchand & Mangaldas, told Business Line .
Most FIIs have taken the stance that their incomes in India are business incomes and therefore not subject to tax here in the absence of taxable presence.
There are some who have considered their incomes to be capital gains and have taken the benefits under bilateral tax treaty for such exemption.
“Income characterisation of FIIs is largely a fact-based determination. Such determination can be made only based on analysis of facts and underlying intentions,” Mr Chawla added.
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