International Tax

The Union Cabinet on Wednesday, August 24, 2016 has approved the new India-Cyprus Double Taxation Avoidance Agreement (DTAA) that provides for source state taxation of capital gains arising from the alienation of shares.

The provisions of the existing DTAA exempted Cypriot residents from Capital Gains Tax in India from sale of shares held in Indian Companies thus resulting in base erosion in India. With the new DTAA, the source state shall also have the power to tax capital gains on sale of shares. The new DTAA shall also pave the way for withdrawal of the Notification No. 86/2013 dated 1st November 2013 wherein payment of any income to an entity in Cyprus was subject to a minimum withholding tax of 30 per cent. Further, it is expected that the said notification shall be withdrawn retrospectively and any taxes paid under the said notification shall be eligible for refund.

The key highlights of the new DTAA are as under:

Ø  Capital Gains arising from sale of shares of an Indian Company shall be taxable in India with effect from 1st April 2017;

Ø  Tax at 50 per cent of the applicable rate shall be applicable on sale of shares effected between the period 1st April 2017 to 31st March 2019;

Ø  Grandfathering of all investments made prior to 1st April 2017 i.e. no tax shall be levied on the sale of shares bought on or before 31st March 2017;

Ø  Cyprus’s status of ‘notified jurisdiction’ rescinded retrospectively from 1st November 2017;


Ø  The new DTAA to reinitiate bilateral ties between India and Cyprus.

Posted on: 25-08-2016