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India-Singapore Protocol Amends Double Taxation Agreement
India and Singapore have signed a protocol amending the Agreement for the Avoidance of Double Taxation (DTA) between the two countries. This amendment introduces significant changes regarding the taxation of capital gains arising from the alienation of shares and other instruments.
Key Provisions of the Protocol:
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Taxation of Capital Gains from Shares Acquired After April 01, 2017
India will now have the right to tax capital gains arising from the alienation of shares acquired on or after April 01, 2017, by a Singapore resident. This amendment gives India the ability to tax gains that were previously exempt under the earlier provisions of the India-Singapore tax treaty. -
Grandfathering of Pre-April 01, 2017 Investments
Investments made in shares before April 01, 2017 are grandfathered, meaning they will continue to enjoy the benefits of the previous tax treaty provisions. As a result, capital gains from the alienation of these investments will remain exempt from capital gains tax in India, subject to a revised Limitation of Benefits (LOB) clause introduced by the protocol. -
Taxation of Non-Share Instruments
Capital gains arising from the alienation of instruments other than shares—such as convertible debentures, bonds, etc.—held by Singapore residents will continue to be taxed only in Singapore. These gains will not be subject to Indian taxation, maintaining the previous tax treatment. -
Domestic Anti-Avoidance Measures
The protocol introduces domestic anti-avoidance measures that will override certain treaty provisions. These measures aim to prevent tax avoidance through misuse of the treaty benefits, ensuring that the intent of the agreement is upheld.
Conclusion
The India-Singapore protocol amends the double taxation agreement, bringing in changes to the taxation of capital gains on shares acquired after April 01, 2017. While investments made before this date remain grandfathered under the old provisions, the introduction of anti-avoidance measures and the revised Limitation of Benefits clause aims to strengthen the treaty and curb any potential abuse.
These changes are expected to bring greater clarity and fairness to the taxation of cross-border investments between the two nations
