India to tax Mauritius venture capital

The country has decided to tax venture capital and private equity deals coming from Mauritius beginning in 2017.

India will impose capital gains tax on venture capital and private equity investments coming from Mauritius starting next year, which will then affect the treatment of funds from Singapore.

Capital gains on shares of an Indian company bought after March 31, 2017, will be taxed at half the prevailing rate, 7.5%, during a two-year transition period, the finance ministry said in a statement. After that, normal rates of 15% will apply.

Funds will have to pay 40% for short-term gains and 10% for long-term gains as compared to zero tax under the Mauritius treaty.

There is, however, no capital gains tax on share transactions in listed companies if those stocks are held for 12 months.

Mauritius and Singapore combined account for about half the total venture capital investments flowing to India. And, according to a protocol signed between India and Singapore in 2005, Singapore’s capital gains tax exemption is linked to taxation under the India-Mauritius tax treaty.

Arvind Mathur, president of the Indian Private Equity and Venture Capital Association, told news provider Economic Times of India: "The government is trying to bring about parity in tax rates for domestic capital gains and those applicable to international investors. Also, they have given a transition period which is a good step.

"They have also grandfathered investments made prior to a certain date; that is, the new pact will not impact investments made before April 1, 2017, thereby eliminating any retrospective effect."

 

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