The tweak in the bilateral agreement was met with a market reaction on Friday, as foreign portfolio investors may have offloaded equities worth Rs 8,027 crore due to it.
The language of the recently amended India-Mauritius tax treaty left much to be desired, according to tax experts. Investors have to invest through a Mauritius entity to avail benefits of the treaty.
This means that any foreign investor who is investing in India with a Mauritius entity, will now have to demonstrate that the principal purpose of investing in India was not for tax mitigation, explained Pranav Sayta, India national leader-international tax and transaction service at Ernst & Young.
Investments through Mauritius in India have declined, and an urgent clarification to say that there is no retrospective intended is going to be very critical, said Dinesh Kanabar, chief executive officer, DhruvaAdvisors LLP.