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India and Singapore have signed a protocol to limit abuse of their double taxation avoidance agreement. India had also recently agreed a similar change to its tax treaty with Mauritius and Cyprus.
The protocol was signed on December 30, 2016, by Lim Thuan Kuan, Singapore's High Commissioner to India, and Sushil Chandra, Chairman of the Central Board of Direct Taxes, India.
It provides India with the right to tax capital gains arising from the alienation of shares acquired on or after April 1, 2017. The protocol provides that in respect of capital gains arising during the transition period from April 1, 2017, to March 31, 2019, the tax rate will be limited to 50 percent of the Indian domestic tax rate (subject to the limitation of benefits clause).
The protocol provides for a new limitation of benefits clause to ensure that the protocol can only be enjoyed by tax residents with substantive economic activities.
The Inland Revenue Authority of Singapore said: "With the revision to the India-Mauritius DTA to phase out capital gains tax exemption, the capital gains tax exemption for shares in the Singapore-India DTA, which had been pegged to the India-Mauritius DTA, has had to be similarly amended. Singapore and India have reached agreement to phase out the capital gains tax exemption gradually, and have also committed to find new ways to promote bilateral investments."
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