India notifies amended tax treaty with Singapore; to impose capital gains tax at source of investments from April 1

The government on Thursday notified the amended India-Singapore tax treaty under which capital gains tax will be levied at source of investments with effect from April 1.

India had amended the tax treaty with Singapore on December 30, 2016, under which for two years beginning April 1, 2017, capital gains tax will be imposed at 50% of the prevailing domestic rate. Full rate will apply from April 1, 2019.

The revision of tax treaty will help curb revenue loss, prevent double non-taxation and streamline the flow of investments, a Finance Ministry statement said, adding that the amended tax treaty has been notified.

"In order to provide certainty to investors, investments in shares made before April 1, 2017, have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol," the statement added.

3rd Protocol amending India-Singapore Double Taxation Avoidance Agreement (DTAA)signed on Dec.30,2016, is notified in Official Gazette today

— Ministry of Finance (@FinMinIndia) March 23, 2017

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The India-Singapore Double Taxation Avoidance Agreement (DTAA) provides for residence-based taxation of capital gains of shares in a company. The tax treaty amendment provides for source-based taxation of capital gains arising on sale of shares in a company with effect from April 1, 2017, it said.

Earlier, the 3rd Protocol amending the DTAA between India & Singapore had come into force with effect from 27th February, 2017.

— Ministry of Finance (@FinMinIndia) March 23, 2017

The amended treaty also inserts Article 9(2) in the DTAA, which will facilitate relieving of economic double taxation in transfer pricing cases.

"This is a taxpayer-friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) action plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases," the statement said.

It also allows application of domestic law and measures concerning prevention of tax avoidance or evasion.

Besides Singapore, India amended bilateral tax treaties with Mauritius and Cyprus in 2016.

Between April and September 2016, India received $5.8 billion foreign direct investment (FDI) from Mauritius, $4.6 billion from Singapore, $1.6 billion from the Netherlands and $381 million from Cyprus.

As per the amended Mauritius tax treaty, companies have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period.

The full rate will kick in from April 1, 2019.

Short-term capital gain tax is levied at 15% in India while long-term capital gain tax is zero.

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