A valid Tax Residency Certificate can get Mauritius-based companies that have invested in India an exemption from paying capital gains tax on exiting Indian investments as the Authority for Advance Ruling (AAR) has upheld the validity of the TRC, reports said.
TRC is a certificate of residency of the investor. Having such a certificate establishes proof that the company concerned is resident of Mauritius.
The uncertainty arose because in some recent decisions, the AAR had disregarded the legal form of the transactions after applying the principles of anti-avoidance. Consequently, capital gains tax exemption under the India-Mauritius treaty was denied to the companies.
Now, in a significant ruling, the AAR has allowed Mauritius-based Dynamic India Fund (DIF)–I to get the benefits of the treaty as it had a valid TRC from the Mauritius revenue authority.
The AAR also said in its ruling that General Anti-avoidance rules (GAAR) provisions have no relevance at present.
These provisions could be dealt with by the revenue authorities as and when they come into force, the AAR said.
Mauritius is a main provider of foreign direct investments into India. It is also the preferred jurisdiction for Indian outward investments into Africa.