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Revised double taxation avoidance agreement between India, Cyprus from April 1

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April 1 has been set as the date when the revised tax treaty with Cyprus comes into force, said the government on Friday. The new treaty provisions for capital gains tax to be levied at the source of investments, reported PTI.

“Both sides have now exchanged notifications intimating the completion of their respective internal procedures for the entry into force of the Double Taxation Avoidance Agreement (DTAA), with which the revised DTAA shall come into effect in India in the fiscal years beginning on or after April 1 2017,” the Central Board of Direct Taxes (CBDT) said in a statement.

The revised DTAA will enable source based taxation of capital gains on shares, except in respect of investments made prior to April 1, 2017. In addition, the DTAA will also bring into effect updated provisions as per international standards and in accordance with the consistent position of India.

Experts, however, said that Mauritius would continue to score over Cyprus as a better investment route at least in the initial two years of the treaty as investments will have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period.

Deloitte Haskins & Sells LLP Senior Director S P Singh said, “Mauritius has remained the favoured route for foreign investments and for the initial two years beginning April 2017, it will definitely score over Cyprus.”

The amendment to the two decade old Cyprus DTAA comes after India in May signed a revised tax treaty with Mauritius under which capital gains will be levied on investments made after April 1, 2017.

Following amendment of the 33-year old tax treaty, companies routing funds into India through Mauritius after March 31, 2017 will have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period. The levy is currently at 15%. The full rate will kick in from April 1, 2019.

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