India has set up a tax treaty strategically to expand ties with the Mauritius, an island nation in the Indian Ocean in 1982. The treaty says that any investment company, based out of Mauritius, which has invested in the Indian companies can go tax free when they sell out their shares in the Indian company. Means, India would not levy capital gains tax on them. It is a special relaxation given to Mauritius. Also, Since Mauritius do not levy capital gains tax in their country, the investment company can go scot-free without suffering from the extra charges.
In view of the wide misuse of the treaty by many shell companies (just a post office address at Mauritius), Govt of India plugged this hole by levying full capital gains tax for all the shell companies.
capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.
capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, 2019.
Note:
#1 Capital gains tax is a levy imposed on an individual/company to pay a certain amount of percentage out of its profits when the sale of assets is occurred.
#2 A company is not a shell company, only if it can prove that it invested atleast INR 27 lakhs in the Mauritius.
