Day after, govt clarifies Budget's Mauritius tax rule; markets rise

A day after stock markets were spooked by a clause in the Budget that was interpreted as making the income of investors using the Mauritius route taxable, the finance ministry issued a clarification to allay fears.

The ministry on Friday said an investor from Mauritius putting money in Indian markets needed to only produce a tax residency certificate (TRC) to claim the benefit of the double taxation avoidance agreement. The Budget had said TRC was no longer enough; proof was needed that the beneficial ownership of the investment too lay with the same person.

The clarification means the tax department would accept at face value that the person or entity claiming residence in Mauritius was also the bonafide investor.

The government is likely to move an amendment in the Finance Bill to reflect the clarification. "Since a concern has been expressed about the language of sub-section (5) of Section 90 (of I-T Act), this concern will be addressed suitably when the Finance Bill is taken up for consideration," the ministry said.

Ministry sources said the tax department had introduced the clause late in the Budget-making process, saying it had figured last year as well. But it had neglected to specify that in Budget 2012-'13, it had been part of the "statement of objects and reason", whereas in Budget 2013-'14, it had been made part of the Finance Bill itself.

The markets recovered after the ministry's clarification. The Sensex, which fell 291 points on Thursday, closed with a gain of 57 points at 18,918.52. The Nifty rose 26.65 points to 5,719.70.

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