The Hindu Business Line : Will Mauritius lose its sheen?

WILL the Mauritius route used by companies for bringing in investments into India lose its sheen? Budget 2003 has proposed that investors who buy stocks of listed companies from March 1, 2003 will be exempt from paying tax on the gains they make on their investments if they hold them for more than a year.

With this proposal, companies may no longer find it attractive to channelise their portfolio or foreign direct investments into the listed entities of the country through the Mauritius route.

According to industry sources, with the removal of tax on capital gains arising out of investments made in listed companies, foreign companies wishing to invest in India can do so directly, without using taking advantage of the tax breaks offered by Mauritius.

However, foreign institutional investors (FIIs) may not be benefited by today's decision. "FIIs invest for short term and they will be subjected to capital gains tax. Hence Mauritius may continue to be an attractive conduit for them," said Mr Milind Barve, Managing Director, HDFC Mutual Fund. Also, foreign companies wishing to invest in unlisted entities could continue using benefits arising out of the Indo-Mauritius Double Taxation Avoidance Convention (DTAC).

According to the DTAC, Mauritius-based entities are exempt from paying capital gains tax in India - including on income arising from sale of shares. Currently a dispute over the DTAC is being heard by the Supreme Court after the Delhi High Court quashed the controversial circular issued by the Central Board of Direct Taxes two years ago exempting Mauritius-based foreign institutional investors (FIIs) from paying tax on capital gains in India - including income arising from sale of shares - under the Double Taxation Avoidance Convention (DTAC).

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Will Mauritius lose its sheen?