May 12, 2016 No.4
https://www.facebook.com/mehtarahulc/posts/10153479816646922
https://www.facebook.com/mehtarahulc/posts/10153479816646922
Can a CA explain this "feature" of new amended Mauritius Tax Treaty --- Banks based in Mauritius loaning money in India will pay only 7.5% tax on interest earned.
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pls see website - http://www.thequint.com/…/no-india-mauritius-tax-treaty-won…
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It says
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3. Source-based taxation of interest income of banks: Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt claims or loans made after 31st March, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India.
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So ;lets say a US company-X invests in India by forming subsidiary company-X-India and earns income. Then that income will be taxed at normal 25% rate --- same as Indian company. Equal equal --- no discrimination.
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But if that company-X first forms a bank-Y in Mauritius, and then bank-Y lends money to company-X-India , and charges such heavy interest that income of company-X-India becomes almost zero and bank-Y earns huge income via interest. Then will effective tax be ONLY 7.5%?
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If so, then tax rate has only changed from 0% to 7.5% instead of 25%. Is that so?
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Is so, then super-elitemen, who can form a bank in Mauritius, and also operate in India, will be taxed at 7.5%. Whereas others will be taxed normal rate of 25% to 30%.
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The amended treaty says that short term capital gains will be taxed at 30%. But with this new feature that interest earned by Mauritius banks will be taxed at only 7.5%, the effective tax rate on short term capital gains also becomes 7.5% only !!! How?
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Say Mauritius-bank-X = X and bank-Y belong to same owner.
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Say X buys shares of Indian company A and sells it and earns profit of say Rs 100 crore. So short term capital gains tax applies on bank-X. But say bank-X is also owning shares of some Indian company-B which it had bought for say Rs 200 crores. . Now Indian company B can take huge loans at heavy interest rate from bank-X . And so due to debt, shares of B will fall to RS 100 crore. So now bank-X can sell the shares to bank-Y, which belongs to same owner. And it will create short term capital loss of Rs 100 crore to bank-X. And so net capital gains is ZERO. And so net capital gains tax is also zero!!!/
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IOW, effective tax on USUK bank owners is only 7.5% and not 25% or 30% as NaMo is telling us.
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Can a CA answer this question?
.
pls see website - http://www.thequint.com/…/no-india-mauritius-tax-treaty-won…
/.
It says
.
-====
.
3. Source-based taxation of interest income of banks: Interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt claims or loans made after 31st March, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India.
.
====
/
So ;lets say a US company-X invests in India by forming subsidiary company-X-India and earns income. Then that income will be taxed at normal 25% rate --- same as Indian company. Equal equal --- no discrimination.
.
But if that company-X first forms a bank-Y in Mauritius, and then bank-Y lends money to company-X-India , and charges such heavy interest that income of company-X-India becomes almost zero and bank-Y earns huge income via interest. Then will effective tax be ONLY 7.5%?
.
If so, then tax rate has only changed from 0% to 7.5% instead of 25%. Is that so?
.
Is so, then super-elitemen, who can form a bank in Mauritius, and also operate in India, will be taxed at 7.5%. Whereas others will be taxed normal rate of 25% to 30%.
.
==============
.
The amended treaty says that short term capital gains will be taxed at 30%. But with this new feature that interest earned by Mauritius banks will be taxed at only 7.5%, the effective tax rate on short term capital gains also becomes 7.5% only !!! How?
.
Say Mauritius-bank-X = X and bank-Y belong to same owner.
.
Say X buys shares of Indian company A and sells it and earns profit of say Rs 100 crore. So short term capital gains tax applies on bank-X. But say bank-X is also owning shares of some Indian company-B which it had bought for say Rs 200 crores. . Now Indian company B can take huge loans at heavy interest rate from bank-X . And so due to debt, shares of B will fall to RS 100 crore. So now bank-X can sell the shares to bank-Y, which belongs to same owner. And it will create short term capital loss of Rs 100 crore to bank-X. And so net capital gains is ZERO. And so net capital gains tax is also zero!!!/
.
IOW, effective tax on USUK bank owners is only 7.5% and not 25% or 30% as NaMo is telling us.
.
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Can a CA answer this question?
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