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Abstract
Mauritius has become a popular country through which to invest into India due to the capital gains tax shelter on divestment of equity interest in Indian companies by Mauritius offshore entities. According to article 13 of the India-Mauritius Tax Treaty, capital gains earned by a Mauritian resident on the transfer of shares in an Indian company are taxable only in Mauritius. Further, Mauritius does not tax capital gains under its domestic tax laws. Hence, capital gains arising to a Mauritius resident on sale of shares of an Indian company would not be liable to tax either in India or in Mauritius. The use of Mauritius as an inbound investment vehicle is not without risk, especially for overseas entities using Mauritius as a tool for tax evasion. Indian tax authorities have in the past come down heavily on abuse of the Treaty. Several overseas investors had allegedly used conduit or post-box companies in Mauritius to enter India, to save on Indian tax on capital gains realized in India. To prevent Treaty abuse, the Indian tax authorities challenged the claims of Mauritius investors to Treaty benefits.