India's new tax treaty with Cyprus: Government gets right to tax capital gains

New Delhi: India and Cyprus have "successfully" completed negotiations on the bilateral tax treaty which provides for source-based taxation of capital gains on share sale, Cyprus Finance Ministry said today.

The double taxation avoidance agreement grand fathers all income prior to April 1, 2017.

"On June 29, 2016, the negotiation on the Double Taxation Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income between Cyprus and India has been successfully completed, in New Delhi," Cyprus Finance Ministry said in a statement.

Cyprus is a major source of foreign fund flows into the country. From April 2000 till March 2016, India received Foreign Direct Investment worth Rs 42,680.76 crore from Cyprus.

"The agreement reached provides for source-based taxation for gains from the alienation of shares; investments undertaken prior to April 1, 2017 are grandfathered with the view that taxation of disposal of such shares at any future date remains with the contracting state of residence of the seller," the statement said.

The text has been agreed between the two negotiating teams of the contracting states and will contribute to further develop the trade and economic links between Cyprus and India, as well as with other countries.

"Upgrading and expanding the network of Double Tax Conventions, is of high economic and political importance and aims to further strengthen and attract foreign investment in Cyprus as its standing an international business centre is elevated," it added.

The completion of the negotiation and the agreement reached on all pending issues will pave the way for the removal of Cyprus from the list of notified jurisdictional areas. It has been agreed that, following the entering into force of the amending Agreement the Indian Authorities will proceed with retrospectively rescinding the classification of Cyprus in the 'Notified Jurisdictional Area' as from November 1, 2013," the statement added.