The Union Finance Ministry has notified hird Protocol amending India-Singapore Double Taxation Avoidance Agreement (DTAA). The agreement came into force in February 2017and was signed in December 2016.
The Third Protocol amends the DTAA between both countries to provide for source-based taxation of capital gains arising on sale of shares in a company.
- The India-Singapore DTAA at present provides for residence-based taxation of capital gains of shares in a company.
- The addition of provision of source-based taxation of capital gains in DTAA, will help to curb revenue loss, prevent double non-taxation and streamline the flow of investments.
- It also provides certainty to investors, investments in shares made before April 1, 2017 subject to fulfilment of conditions in Limitation of Benefits clause as per 2005 Protocol.
- Further, it also provides a two-year transition period from April 1, 2017 to March 31, 2019 during which capital gains on shares will be taxed in source country at half the normal tax rate.
- It also facilitates relieving of economic double taxation in transfer pricing cases. It is a taxpayer-friendly measure and is in line with India’s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan.
- It also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion.