The third protocol amending the existing India-Singapore Double Taxation Avoidance Agreement (DTAA) entered into force.
The provisions provided in the third protocol — signed in December 2016 — have become law in Singapore now.
Singapore was the largest foreign direct investor into India for the period April 2015 to March 2016, and one of the largest portfolio investors in Indian markets.
Following a meeting between Singapore Prime Minister Lee Hsien Loong and Prime Minister Narendra Modi in October 2016, it was decided to revise an existing DTAA. Both the countries later agreed to phase out the capital gains tax exemption gradually, and also committed to find new ways to promote bilateral investments.
The updated tax agreement (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 2017.
For shares acquired on or after April 1, 2017, there will be a two-year transition period.
In this transition period, capital gains from such shares acquired on or after April 1, 2017 will be taxed at 50 per cent of domestic tax rate if the capital gains arise during April 1, 2017 to March 2019.
For gains that arise after March 31, 2019, it will be taxable in the State in which the company whose shares are alienated is resident.
