The Centre will tax capital gains on investments from Mauritius, the tiny island from where India has received nearly a one- third of its total foreign direct investment (FDI) inflows since 2000.
Investment from Mauritius into India were formerly exempted from capital gains tax.
Features of amendment:
Capital gains tax will be applicable to short-term investment of less than 12 months starting April 1, 2017.
Long term investment, with over 12 months of tenure, will continue to be exempt from capital gains tax.
Reasons for capital gain tax:
It will tackle long-pending issues of treaty abuse (Double Taxation Avoidance Agreement) and round-tripping of funds attributed to the India-Mauritius treaty. It will improve transparency in tax matters and will help curb tax evasion and tax avoidance
It also seeks to:
1. curb revenue loss,
2. prevent double non-taxation,
3. streamline the flow of investment and
4. stimulate the flow of exchange of information between India and Mauritius.
Capital Gains Tax:
A capital gains tax (CGT) is a tax on the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount it was sold for. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.
It denotes a trip where a person or thing returns to the place from where the journey began. In the context of black money, it leaves the country through various channels such as inflated invoices, payments to shell companies overseas, the hawala route and so on. After resting overseas for a while, this money returns in a freshly laundered form to original country thus completing a round-trip.