Abuse of double taxation avoidance agreement between India and Mauritius

Abstract

Double taxation Avoidance agreements are entered between two countries so that the income earned by the residents of both the countries is not taxed twice by the countries. It provides relief to the residents in form of either deduction of tax already paid or by giving credit regarding the tax paid. The objective of this paper is to find the ways in which India-Mauritius Treaty was misused by individuals by doing treaty shopping. The DTAA between India and Mauritius gives specific tax exemptions for individuals who are residents of India and Mauritius. The treaty provides that if a resident of Mauritius invests in shares of an Indian company the capital gains of that resident will not be taxed by the Indian government and would be taxed by the Mauritius government. But because of this treaty it has been seen that individuals from all around the world try to route their investments from Mauritius to India. In this paper the researcher will look into how the treaty was abused and what steps have been taken by Indian authorities in their domestic laws to ensure that individuals who are non-residents of the contracting state cannot avail benefits arising out of the DTAA.