Cannot impose capital gains tax on Mauritius-routed funds: Govt

Under the present treaty, only Mauritius has the right to tax capital gains on investment which is routed through it in India. But it does not levy any tax as per its domestic policies giving advantage to the investors

New Delhi: Amidst panic in the stock market over double tax avoidance treaty with Mauritius, the Indian government on Monday said India “cannot impose arbitrarily” capital gains tax on investment routed through the island nation, reports PTI.

“How can you do that? There has to be some agreement on that. Right now, it is not there in the agreement. You cannot impose it arbitrarily,” Indian finance secretary Sunil Mitra told PTI.

However, he said the two nations are likely to hold discussions on revision of the double tax avoidance treaty, which has been used for routing third country investment into India for availing of tax exemptions.

The BSE benchmark Sensex plunged by over 556 points in intra-day trade Monday on widespread panic selling by funds as well as retail investors, triggered by reports that the government may impose capital gains tax on investments through Mauritius.

There was a recovery in the market in the afternoon, but the Sensex was trading 336 points lower 1450 hours.

Asked to comment on the market fall, Mr Mitra said, “That is up to the market. What can I say?”

The finance secretary said the process of renegotiation of the tax treaty with the island nation began in 2006 through a joint working group, but got stalled in 2008.

New Delhi has suggested dates in July and August for resumption of talks. “They have to give their consent,” he said.

Under the present treaty, only Mauritius has the right to tax capital gains on investment which is routed through it in India. But it does not levy any tax as per its domestic policies giving advantage to the investors.

Most of the foreign direct investment as also the inflows in the stock market are round-tripped through Mauritius.

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COMMENTS

Java

6 years ago

This dumb treaty explains why the Indian markets are so volatile. If Dawood Ibrahim were to or the ISI were to earn a minor fortune and periodically demolish the Indian markets, all they have to do is to buy up shares through Mauritius, jacking up the prices to sky high and then sell and get out, taking the entire proceeds, paying zilch, nada, cipher, zero tax. Enter again when the prices have collapsed and go through the cycle again. Is India inflicted with congenital stupidity or is there a method in this madness which I am missing?

Royal Sundaram Alliance eyeing presence in rural areas

Royal Sundaram Alliance Insurance expansion strategy is based on the hub-and-spoke model, where in a branch would serve the smaller adjoining locations

Royal Sundaram Alliance Insurance said it plans to increase its presence in the semi-urban and rural areas of the country. As part of this initiative, the company recently inaugurated its new branch in textile hub of Karur, a company statement said.

The company’s expansion strategy is based on the hub-and-spoke model, where in a branch would serve the smaller adjoining locations, it added. The new branch at Karur would serve the adjoining areas like Kulithalai, Pallipatti and Aravakurichi, it said.

“This move is a part of our geographic expansion strategy in tier II and tier III cities. Karur has high potential and generated substantial business in the current year and we expect a higher growth,” Royal Sundaram Alliance Insurance managing director Ajay Bimbhet said.

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Tighter but uniform KYC norms in offing

The issue of making the ‘know your customer’ (KYC) norms more strict was taken up at the last meeting of a sub-committee of the Financial Stability Development Council

With the government facing heat on the issue of black money, the Finance Ministry has begun an exercise to make identification norms uniform and more stringent for capital market players like FIIs (foreign institutional investors), mutual funds and brokerage customers.

In addition, market regulator SEBI is working on further tightening of its surveillance mechanism, an official in the Finance Ministry said.

The issue of making the ‘know your customer’ (KYC) norms more strict was taken up at the last meeting of a sub-committee of the Financial Stability Development Council (FSDC), headed by Reserve Bank of India governor D Subbarao.

“We are working on a common KYC. It will be more strong and stringent,” the official said. At present, different market players follow different KYC norms.

As for the SEBI surveillance rules, he said, “We have enough safeguards to check inflow of illicit and unaccounted money into the capital market. The only possibility of such flows into the market is through FII and high net worth individuals. We will make the surveillance stricter.”

The moves are part of the government’s fight against the black money menace amid intense pressure from civil society, Opposition parties and the Supreme Court.

The RBI and SEBI have been tightening KYC norms from time-to-time. Furthermore, banks also required to update the information of their clients.

Between January, 2010, and January, 2011, SEBI banned over 30 entities for engaging in circular trading for periods ranging from two months to two years.

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COMMENTS

Sudhakar Kulkarni

6 years ago

KYC is must however it should be done once only. presently KYC compliance is insisted separately by DP, Mutual Fund, Broker, Bank, Insurance,mobile service provider and so on, ideally there should one centralized agency where one has to do the compliance once only and only the given number should be quoted whenever needed, the respective can verify the same online. This will automatically bring uniformity in the compliance and will avoid repetition.Once the UID project is completed there wont be need for separate KYC compliance however UID project make take quite long time hence till such time centralized KYC facility is most.

K B Patil

6 years ago

KYC is a clear example of the govt. going overboard. All that KYC does is harass genuine citizens. For instance, my daughter has just turned 18. But she doesnt have a driving licence or a voter card. Her passport has expired recently. So, till I get these documents done, she cant even open a bank account. Jai ho, Bharat Sarkar!!

Nagesh KiniFCA

6 years ago

Does the 'K' in the KYC stand for 'know' or 'kick' or 'kill' Your Customer?
While dummy bank accounts and demat accounts with fake IDs go on with impunity, genuine individuals, senior citizens are harassed.
The Maharashtra State Co-op. Bank when given the PAN card for personal identity and Voters Card for residence proof insisted on a Light Bill. As long as the address is not changed even when the Voters Card was issued long time back shouldn't make a difference to the requirement of 'latest proof of residence'. I refused to provide anything further than the Election Commission Voter ID. Is this not a case of Kicking Your Customer?

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