India will have to renegotiate tax agreement with Singapore to increase capital gains tax provisions of the recently-concluded tax pact with Mauritius, Finance Minister Arun Jaitley has said.
Without giving deadline for any renegotiation, he said it "is a separate sovereign state, it (Mauritius treaty) does not ipso facto automatically extend. The principles will have to be applied, but applied through renegotiation."
Speaking at national capital, he said further: "But sooner or later, that process will commence and hopefully conclude."
India on May 10 revised the 34-year-old tax treaty with Mauritius. After toiling for about a decade to redraw the treaty, India will begin imposing capital gains tax on investments in shares through Mauritius from April next onwards.
The redrawn Mauritius treaty will trigger a similar amendment in India's tax treaty with Singapore.
"I am not giving it a timeline, because if you recollect, the renegotiation process of the Mauritius treaty started first in 1996 and it continued till about 2002 and then there was a pause. Singapore was entered into in 2005 and one of the covenants of Singapore was that provisions of what happens in Mauritius treaty would extend to it," the minister said.
Mauritius and Singapore accounted for $17 billion of the total $ 29.4 billion India received in FDI during April-December 2015.
Jaitley said that since the discussions are between two sovereign states, he cannot "unilaterally" fix its timetable.
Following the revised pact, short-term capital gains tax will be levied at half the rate prevailing during the first two-year transition period from April 1, 2017 to March 31, 2019. Short-term capital gains are taxed at 15 per cent at present. The full rate will kick in from April 1, 2019.
In August 1982, India had signed the treaty with Mauritius to eliminate double taxation of income and capital gains to encourage mutual trade and investment.