India Notified Third Protocol of India-Singapore DTAA

India has notified the Third Protocol amending the existing India-Singapore double taxation avoidance agreement (DTAA).

The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company.

The Third Protocol amends this DTAA with effect from April 1,2017 to provide for source based taxation of capital gains arising on sale of shares in a company.

The Third Protocol had come into force on February 27 and Singapore had on March 1 made an announcement in this regard.

Singapore was the largest foreign direct investor into India for the period April 2015 to March 2016, and one of the biggest portfolio investors in Indian markets.

The Third Protocol preserves the existing tax exemption on capital gains for shares acquired before April 1,2017, while providing a transitional arrangement for shares acquired on or after April 1,2017.

In order to provide certainty to investors, investments in shares made before April 1, 2017 have been grandfathered subject to fulfilment of limitation of benefits clause.

The Third Protocol also inserts Article 9(2) in the DTAA which would facilitate “relieving of economic double taxation in transfer pricing cases”.