New DTAA with Singapore counters round tripping

India and Singapore on Friday signed a pact for amendment of the Double Taxation Avoidance Agreement to curb illegal hoarding of money.

Published: 31st December 2016 01:04 AM  |   Last Updated: 31st December 2016 05:58 AM   |  A+A-

By Express News Service

NEW DELHI: India and Singapore on Friday signed a pact for amendment of the Double Taxation Avoidance Agreement (DTAA), in a bid to curb illegal hoarding of money. With the amendment, investments in India routed through Singapore will be liable for capital gains tax.

According to Finance Minister Arun Jaitley, this amendment has been done to prevent round-tripping of funds, misused for tax evasion. Earlier this year, India signed similar agreements with Mauritius and Cyprus. Beginning from April 2017, capital gains tax will be imposed at 50 percent (liabilities will be shared half and half between the countries), grandfathering for a period of two years. The tax will be imposed completely from April 2019.

Singapore and Mauritius are among the top countries for foreign direct investments (FDI) in India. The two countries reportedly have accounted for $17 billion of the total FDI (of $29.4 billion) between April and December 2015-16.

Addressing the media, Jaitley said: “In May, we had amended the DTAA with Mauritius following a similar move in September with Cyprus. With these three, we have successfully stopped round tripping through this route.”

Prior to this amendment, investors enjoyed tax exemption on capital gains, as there was no capital gains tax. India signed a DTAA with Singapore in 1994. the

According to an amendment in 2005, any capital gains arising from sale of property or shares were taxable only in the country of residence of the investor. This meant that Singapore-based investors in India, enjoyed exemptions from capital gains tax. This amendment had been made to encourage Singapore-based investors to invest in India. Jaitley termed the latest move as a “reasonable burial to black money”.

The Indian Government has also reached an agreement with Switzerland where the latter will share complete information on investments from Indians in Switzerland from 2019, he added.  

Experts say this was a good move. “Anyone could route his illegal money to a foreign country and invest the same in India again through P-notes. There was no way to find out who was investing... The DTAA amendment basically increases transparency, effectively stops round-tripping of funds and the government will get to know information about the investors,” pointed out Nagaraj BG, Financial Planner, ICICI Securities.

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