New Delhi: P-Notes will not come under the amended India’s tax treaty with Mauritius that seeks to impose capital gains tax on investments from the island nation, said revenue secretary Hasmukh Adhia on Wednesday.
P-Notes are derivatives that mimics an underlying Indian security and are sold by brokerages to foreign investors. They allow investors to avoid Indian taxes on direct investments.
He made it clear that while the new treaty will trigger a similar amendment in India’s tax pact with Singapore, India has the option to scrap agreement with Cyprus if it does not agree to similar changes.
“P-Notes is a separate decision. It is not linked to the treaty,” Mr Adhia said, adding that the provisions of the General Anti-Avoidance Rule (GAAR), which take effect from April next year, will override the tax treaty provisions in case the agreement is abused.
“GAAR being anti-abuse provision can prevail over treaty if it is proved that it is an abuse of treaty. It app-lies in case of any situation where there is an abuse of treaty for gaining tax benefit unduly,” he said.
GAAR, which was originally to be implemented from April 1, 2014, will now come into effect from April 1, 2017 (assessment Year 2018-19). Mr Adhia said that Cyprus was not a very important country with regard to investment inflows and India was talking to it to rewrite the taxation treaty.
