Union Cabinet gives nod to revised Indo-Cyprus DTAA

New Delhi, Aug 24 (PTI) In another major step in fightagainst tax evasion, the Cabinet today gave its approval tothe revised DTAA between India and Cyprus that provides forsource-based taxation of capital gains on transfer of sharesinstead of one based on residence. "The Union Cabinet chaired by Prime Minister NarendraModi has given its approval to signing of an agreement andthe protocol between India and Cyprus for avoidance of DoubleTaxation and the Prevention of Fiscal Evasion with respect totaxes on income," an official statement said. Noting that this step follows the recent amendment of theDouble Taxation Avoidance Agreement (DTAA) with Mauritius, thestatement said the treaty with Cyprus had provided forresidence-based taxation of capital gains as in the case ofMauritius. "With the revision of the treaty now approved by theCabinet, capital gains will be taxed in India for entitiesresident in Cyprus, subject to double tax relief," it added. In other words, India will have the right to tax capitalgains arising in the country. The provisions in the earlier treaty for residence-basedtaxation were leading to distortions in funds flows throughartificial diversion of various investments from their truecountries of origin for the sake of avoiding tax. "As in the case of Mauritius, this amendment will detersuch activities. Negotiations with Singapore are also underway for similar changes," the statement said. An official-level meeting between India and Cyprus washeld here in June to finalise the new India-Cyprus DTAA,wherein all pending issues, including taxation of capitalgains, were discussed, and an in-principle agreement wasreached. "It was agreed to provide for source-based taxation ofcapital gains on transfer of shares. However, agrand-fathering clause would be provided for investments madeprior to April 1, 2017, in respect of which capital gainswould be taxed in the country of which taxpayer is aresident," the ministry had said in a statement earlier. India and Cyprus have a DTAA since 1994. Cyprus is amajor source of foreign funds flows into the country. FromApril 2000 till March 2016, India received foreign directinvestment to the tune of Rs 42,680.76 crore from Cyprus. The completion of negotiation on avoidance of doubletaxation and prevention of fiscal evasion has paved the wayfor removal of Cyprus from the list of ‘NotifiedJurisdictional Areas’ retrospectively from November 2013. PTIBKSARD