“Investment funds are not defined as shares in the Convention and in the Income Tax Act, so the taxpayer got the benefit,” said Mayank Mohanka, founder of Taxaaram India.
Here is a further consideration of the remaining clause of DTAAs that exempt investment funds from capital gain tax, which DTAAs of countries have it, and what other requirements must comply with non-resident Indians (NRIs) to meet the tax residence in another country.
The most important rest clause
The DTAA from India with abroad must have a remaining clause under ‘Capital profit’ that says that profits of ‘the alienation of property other than those referred … is only taxable in the contracting State of which the transferor is a resident’.
Gautam Nayak, partner at CNK & Associates, said: “In different DTAAs (although not all), profit from the transfer of other assets than real estate and shares of a company fall under the ‘remaining clause’. This clause says that the profit is only taxable in the country of the seller’s stay.”
Also read: Voluntary Provident Fund offers high interest rates. But withdrawals are difficult.
To make use of his exemption, however, the taxpayer must be a tax -dweller of a country that does not pay any power profits. To be eligible for the status of the tax permit, the taxpayer must meet all the conditions of DTAA between India and the country of residence.
Countries that meet both conditions – which means that they have a remaining clause under ‘capital gain’ in their DTAA with India and do not burden tax gains – include the United Arab Emirates, Singapore and Mauritius. India has more than 90 dta’s with different countries, so more countries can meet these conditions.
Under the DTAAs of India with the United Kingdom, the United States and Canada, all power gain of Indian assets must be taxed according to Indian tax laws. This DTAAS says: “Every contracting state can be able to tax won in accordance with the provisions of its domestic law.”
Tax housing
To make use of DTAA benefits such as tax houses abroad, you must comply with Article 4 of the DTAA, which determines the conditions to be a tax homes of that specific country.
Riaz Thingna, partner at Grant Thornton Bharat, Said, “For Claiming the Capital Gains Exemption, One Needs to Check the Residential Status of the Nri As On The Date of Transfer or Sale of the Capital Asset. As long as the N not resident in the Date of White Fund of White or Transferment of Transfery Of Transfery of Transfery of Transfery of Transfery of Transferment of Transferment of Transferment of Transferment of Transferment Of Transfery of Transferment Of Transfery Of Transfery Of Transfer Of Transfer Of Was a resident or non -resident at the time of their acquisition, Capital Gains Will Be Exempted From Tax in India As per the DTAA provisions for certain countries such as Singapore, VAE, Mauritius, Luxembourg and Switzerland. “
“Since capital profits of investment funds are not taxable in India according to the DTAA and the local laws of Singapore, this leads to double non-taxing of income. In such cases, the ‘limitation of the exemption’ clause under the India-Singapore DTAA can be activated, which may have been added to the india. Dtaa.
Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax, KPMG, said: “In general, the benefit will be available for a person who is a resident of the other country according to Article 4 of the relevant DTAA, subject to all other conditions. This is possible if the person lives by the other country and non-resident of India” “” “
Also read: Face -free tax reviews are a game change. But there is room for improvement.
There could be a scenario in which the “individual is a resident of both India and the other country, according to the respective domestic tax legislation. However, according to rules of the TIE breaker (in general prescribed in Article 4 (2) of the DTAA) that qualifies the person as an ultimate tax resident of the other country,” she added.
Apart from the fact that it is a non-resident Indian, the person must also submit a tax permit (TRC) from the country in which he lives to get the benefits of the DTAA.
“The TRC mentions the residential status abroad and other details of the individual. If it does not bear the person’s tax identification number abroad; his status (individual or company); nationality; period of the residence, and his address abroad, the person at the top has a charter -heg, a Chared -Heg, Bengaluru.
“Whether the initial investment has been made of resident account, NRO (non-resident ordinary) or NRE (non-resident external) account generally has no lower,” says Naisar Shah, director at PR Bhuta & Co.
New rules to prevent abuse
Bhuta said: “The multilateral convention to implement tax treaties related measures to prevent basic erosion and profit shift (MLI) has been developed to quickly and efficiently update bilateral tax treaties to prevent tax avoidance in cross-border situations. The most important target pot is introduced under April 7. “
The PPT is designed to ensure that tax treaties are not abused. After considering the facts of a case, if the tax authorities reasonably conclude that one of the main reasons why the person moved to the VAE of Singapore would benefit from the capital gain exemption from investment funds, they can use the PPT to refuse that exemption.
Although the PPT is now included in many tax treaties, it does not cover them all.
Remember that tax rules can change
As it looks now, at the time of the initial investment you do not have to be an NRI to be eligible for DTAA benefits. However, keep in mind that tax rules are subject to regular assessments.
Also read: Is gold the goatactive of our lives?
“This issue must also be viewed from the legislative angle of intent. Treaties were changed in 2017 in bilaterally to exclude the share sale from the treaty benefit to limit the practice of escaping tax obligations about the sale of underlying assets in the guise of stock sales, but this functional distie is very important. Investment funds purchased by Indian income before they become an NRI are claimed as exempt, “said Mohanka of Taxaaram India.
“I believe that, since this issue has been in the spotlight, the government can try again to change tolerates to include investment funds. If that is not possible, we can expect a new definition of shares that includes units of investment fund in the coming law on income tax,” he added.
