Following the changes of the Double Tax Avoidance Agreements between India and Mauritius and between India and Cyprus, also the treaty between India and Singapore will, effective as from 1 April 2017, switch to a source based taxation for capital gains arising from the transfer of shares acquired on or after 1 April 2017. What that means is – effective 1 April 2017 when a Singapore resident sells Indian equity shares, acquired on or after 1 April 2017, the capital gains arising on such a transaction will – as in the case of Indian investments held through other jurisdictions (apart from the Netherlands; see below) – be taxable in India.
Out of the former Quadriga (i.e. Singapore, Mauritius, Cyprus and the Netherlands) providing for advantageous provisions covering the taxation of capital gains arising on the transfer of shares in Indian companies, only the India – Netherlands treaty still provides for an exemption of capital gains from taxation in India, as long as the purchasing party is not an Indian resident.
The India – Netherlands treaty will remain applicable for the time being. It however remains to be seen how long the treaty will remain effective as new negotiations are likely to put pressure on the Netherlands to bring the treaty in line with developments now taking place under the treaty with Singapore, Mauritius and Cyprus. If investments into India through the Netherlands seem to be too risky in view of potential future changes to the double tax treaty as mentioned above, then holding investments into India directly by Switzerland might be a realistic alternative. In any case, future investments into India require careful planning.
Read more in the Tax Insights “Double taxation avoidance agreement between India and Singapore renegotiated”.
