In my earlier post I have discussed about GAAR, and now Indian government is trying to dilute it. As many countries are opposing it and due to its implication Foreign Direct Investment (FDI) in India can be hampered.

According to new discussion India could introduce new capital gain tax liabiliteis for foreign investors who invest in India through Mauritius. India and Mauritius have a tax treaty to avoid double taxation but new foreign companies might not get the treaty’s protection under the new regulation if Indian officials feel that those investments are routed through Mauritius only to get tax benefits.

The responsibility of proving tax avoidance will rest with the Indian authorities. The government also will not apply the rules retrospectively as this was the main issue of foreign companies. According to clarification given by government the proposed law was never intended to tax small investors and business in the first place rather it was aimed at examining large deals for possible tax evasion through the use of innovative structures to circumvent the jurisdiction of Indian authorities.

Suggestions and Comments are welcome.