In a significant development towards renegotiation of tax treaty with Mauritius, the Finance Ministry has written to the Ministry of External Affairs to take up the issue of including more areas of information exchange in the agreement between the two countries.
The existing tax treaty is being misused by many third country investors to avoid paying taxes.
In the revised Double Taxation Avoidance Agreement (DTAA), which is being discussed by the two countries for past several years, the Finance Ministry wants an article on exchange of banking information and assistance in collection of taxes.
"The Article 26 on exchange agreement provides for exchange of tax matters between the countries. It does not contain sharing of banking information and assistance in collection of taxes," Sudhir Chandra, chairman, Central Board of Direct Taxes (CBDT), told reporters.
Under the treaty between the two countries, a Mauritius-based investor does not pay capital gains tax either in India or in Mauritius. This has made Mauritius an attractive route for investment.
India has DTAAs with 79 countries. It has initiated process of negotiation with 65 countries while that with 23 others are complete.
The government is also in negotiations with 22 jurisdictions for signing Tax Information Exchange Agreements (TIEA).
It is also proposed to create eight new overseas income tax units in Indian missions abroad to have effective exchange of information on tax matters.
Two overseas income tax units at Indian missions in Mauritius and Singapore have been set up. Eight more such units in the USA, the UK, the Netherlands, Japan, Cyprus, Germany, France and the UAE are proposed to be set up.
