India and Cyprus on Friday signed the revised bilateral tax treaty under which capital gains tax will be levied on sale of shares on investments made after April 1, 2017, bringing the island nation at par with Mauritius in terms of tax treatment.

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The new agreement also provides for exchange of banking information and allows the use of such information for purposes other than taxation with prior approval of competent authorities of the country.

Both had earlier in June agreed to revise the over two decade old tax treaty and decided to grandfather investments made prior to April 1, 2017.

"The new DTAA provides for source-based taxation of capital gains arising from alienation of shares, instead of residence-based taxation provided under the existing DTAA. However, a grandfathering clause has been provided for investments made prior to April 1, 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident," a finance ministry statement said.

The new agreement provides for assistance between the two countries for collection of taxes.

It also updates the provisions related to exchange of information to accepted international standards, which will allow exchange of banking details and its use for purposes other than taxation with prior approval of competent authorities of the country providing the information.

The new agreement expands the scope of 'permanent establishment' and reduces the tax rate on royalty in the country from which payments are made to 10 per cent from the existing 15 per cent, in line with the tax rate under Indian tax laws.

It also updates the text of other provisions in accordance with the international standards and consistent policy of India in respect of tax treaties, the ministry added.

The completion of the negotiation on avoidance of double taxation and the prevention of fiscal evasion will also pave the way for the removal of Cyprus from the list of 'Notified Jurisdictional Areas' retrospectively from November 2013.

The notification imposed tougher conditions and withholding tax on investments coming from Cyprus.

The revised agreement is expected to contribute to further develop the trade and economic links between Cyprus and India and also with other countries. India and Cyprus have a DTAA since 1994.

Cyprus is a major source of foreign fund flows into the country. From April 2000 till September 2016, India received FDI worth Rs 45,227 crore ($8.9 billion) from Cyprus.

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