Capital gains breather for Mauritius-based funds
NEW DELHI : Mauritius-based offshore funds facing ambiguity over capital gains tax have received a shot in the arm at last following a verdict of the Mumbai bench of the Income Tax Appellate Tribunal (ITAT). In a case about the foreign direct investment of Indium IV Holdings (Mauritius), the tribunal has allowed the fund to carry forward long term capital loss (LTCL) while simultaneously allowing the fund to claim treaty benefit for short term capital gains (STCG).
The verdict is expected to set a precedent and help many other Mauritius-based funds who are facing similar issues, say tax experts. Foreign investors, just like domestic investors are allowed to offset certain types of capital gains with capital losses to reduce the tax burden.
However, foreign investors can also opt for what are called treaty benefits. India has double tax avoidance agreements (DTAAs) with several countries, including Mauritius, and these treaties allow foreign investors to choose to get taxed either in India or in their home country.
“This ruling holds great importance in clarifying the application of both the Treaty and the Income Tax Act. Taxpayers deserve the flexibility to optimize their tax," said Suresh Swamy, partner, Price Waterhouse & Co LLP.
“Allowing the carry forward of long-term capital losses under the Income Tax Act while benefiting from the India-Mauritius DTAA for short-term capital gains exemption dispels ambiguity surrounding the choice of tax provisions. This decision marks a significant stride toward achieving clarity in the continually evolving tax landscape." In this case, in FY18 Indium made an STCG of ₹219 crore by selling shares of some companies while it also accrued LTCL of ₹14 crore in a different transaction.
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