The Cabinet on Wednesday approved a revised Double Tax Avoidance Agreement(DTAA) between India and Cyprus that provides for source-based taxation of capital gains on transfer of shares instead of one based on residence.
“The Cabinet approves signing a Revised Double Tax Avoidance Agreement (DTAA) between the Republic of India and the Republic of Cyprus,” the Finance Ministry said in a tweet.
“Revised DTAA provides for source-based taxation of capital gains on transfer of shares, instead of residence based taxation,” it added.
An official-level meeting between India and Cyprus was held in June to finalise the new India-Cyprus DTAA wherein all pending issues, including taxation of capital gains, were discussed, and an in-principle agreement was reached on all pending issues.
“It was agreed to provide for source-based taxation of capital gains on transfer of shares. However, a grandfathering clause would be provided for investments made prior to April 1, 2017, in respect of which capital gains would be taxed in the country of which taxpayer is a resident,” the ministry had said in a statement earlier.
India and Cyprus have a DTAA since 1994. Cyprus is a major source of foreign funds flows into the country. From April 2000 till March 2016, India received foreign direct investment to the tune of Rs 42,680.76 crore from Cyprus.
The completion of negotiation on avoidance of double taxation and prevention of fiscal evasion has paved the way for removal of Cyprus from the list of ‘Notified Jurisdictional Areas’ retrospectively from November 2013.