The dividend tax system has been revised in India`s draft budget for 2020. Dividend is the portion of the company`s profit that it distributes to its shareholders. Under the traditional dividend taxing system, the dividend is taxable in the hands of shareholders. Most countries use this system to tax dividends. In India, the dividend was taxed in the hands of the company at the time of distribution. The budget proposes to move from this system to the conventional system. In the current situation where there is economic instability in the market, this is a major setback for investors, where each country is trying to create a friendly market for investment and where judgments like AAR will remove investors from the country. First, the effects of such an order are expected to be colossal. Investors were protected under the grandfather`s general rule, i.e. investments before April 1, 2017, will not be taxable, but after changing the rules of the agreement between the Government of the Republic of India and the Government of Mauritius to avoid double taxation, exit plans have been strengthened2.
The impact would also be visible in the process, as there is considerable uncertainty about the resignations of private equity firms and the DBAA signed by India with Mauritius. This is not the first time AAR has ruled against the normal course of the contract. On a few occasions, it has been found that investors and companies derive their money from Mauritius and Singapore, primarily to take advantage of DTAA`s advantage between India and Mauritius. Send your article via our online form Click here Note we only accept original articles, we do not accept articles that have already been published on other websites. For more details Contact: email@example.com The agreement on double tax evasion between India and Mauritius (`DTAA`) provides for a possible tax exemption for foreign investors, under which Mauritius is considered one of the preferred ways of investing in India, which exempts capital gains tax resulting from the sale of shares of an Indian company. In the past, Indian revenues have called into question the granting of capital gains tax exemption under the tax treaty, on the grounds that the Mauritian company has no real commercial substance and was created solely for the purchase of contracts. This approach has resulted in lengthy and significant litigation in a number of cases where investments have been made in India through Mauritius. Article 13, paragraph 4, of the DBA provides that profits made by a resident of a contracting state as a result of the disposal of the shares are taxable only in that state. In addition, in some 789 of 13.04.2000, the Central Direct Taxes Council (CBDT) specified that under Article 13, paragraph 4 of the DBAA, each resident of a state designates any person taxable under the laws of that state. In one of these prestigious court proceedings, the Supreme Court of India confirmed, following the provisions of the Treaty and CIRCULARs CBDT No.
682 of 30 March 1994 and 789 of 13 April 2000, that it could benefit from the benefits of the tax contract if it had obtained a „Certificate of Residence“ (TRC) from the Mauritian tax authorities. On the basis of the Supreme Court decision, organizations with a valid CRT should be entitled to contractual benefits. However, despite the Apex court ruling, the debate is not yet closed and the tax authorities have examined the investments in Mauritius and have tried to deny the benefits of the contract under the pretext of contract shopping.