India and Singapore Sign a Third Protocol for Amending the Double Taxation Avoidance Agreement (DTAA)
India
and Singapore have amended the DTAA for the avoidance of double
taxation and prevention of fiscal evasion with respect to taxes on
income, by signing a Third Protocol today. This is in line with India’s
treaty policy to prevent double non-taxation, curb revenue loss and
check the menace of black money through automatic exchange of
information, as reflected in India’s recently revised treaties with
Mauritius and Cyprus and the joint declaration signed with Switzerland.
The Protocol for amendment of the India-Mauritius Convention signed
on 10th May, 2016, provides for source-based taxation of capital gains
arising from alienation of shares acquired from 1st April, 2017 in a
company resident in India. Simultaneously, investments made before 1st
April, 2017 have been grandfathered and will not be subject to capital
gains taxation in India. Where such capital gains arise during the
transition period from 1st April, 2017 to 31st March, 2019, the tax rate
will be limited to 50% of the domestic tax rate of India. However, the
benefit of 50% reduction in tax rate during the transition period shall
be subject to the Limitation of Benefits Article. Taxation in India at
full domestic tax rate will take place from financial year 2019-20
onwards.
The revised DTAA between India and Cyprus signed on 18th November,
2016, provides for source based taxation of capital gains arising from
alienation of shares, instead of residence based taxation provided under
the DTAA signed in 1994. However, a grandfathering clause has been
provided for investments made prior to 1st April, 2017, in respect of
which capital gains would continue to be taxed in the country of which
taxpayer is a resident. It also provides for assistance between the two
countries for collection of taxes and updates the provisions related to
Exchange of Information to accepted international standards.
Fighting the menace of Black Money stashed in offshore accounts has
been a key priority area for the Government. To further this goal, the
‘Joint Declaration’ for the implementation of Automatic Exchange of
Information (AEOI) between India and Switzerland was signed in November,
2016. It will now be possible for India to receive from September, 2019
onwards, the financial information of accounts held by Indian residents
in Switzerland for 2018 and subsequent years, on an automatic basis.
The India-Singapore DTAA at present provides for residence based
taxation of capital gains of shares in a company. The Third Protocol
amends the DTAA with effect from 1st April, 2017 to provide for source
based taxation of capital gains arising on transfer of shares in a
company. This will curb revenue loss, prevent double non-taxation and
streamline the flow of investments. In order to provide certainty to
investors, investments in shares made before 1st April, 2017 have been
grandfathered subject to fulfillment of conditions in Limitation of
Benefits clause as per 2005 Protocol. Further, a two year transition
period from 1st April, 2017 to 31st March, 2019 has been provided during
which capital gains on shares will be taxed in source country at half
of normal tax rate, subject to fulfillment of conditions in Limitation
of Benefits clause.
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