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India will get the right to tax capital gains on investments channelled through Mauritius under an amended tax treaty it signed with the Mauritius. The amendment to the 1983 India-Mauritius treaty, which will come into force on 1 April 2017, will also apply to the India-Singapore treaty, shutting two lucrative investment routes preferred by foreign investors. The India-Singapore treaty links the capital gains tax regime to that provided in the India-Mauritius treaty. Around 50% of foreign direct investment into India comes through Mauritius and Singapore, according to Indian government data. Some 34% of it is channelled through Mauritius and 16% through Singapore.

In addition, the amended India-Mauritius double taxation avoidance treaty has also provided for a limitation of benefit clause that will ensure that only genuine Mauritius-based companies get the benefit of the bilateral tax treaty. Only those Mauritius-based companies that have a total expenditure of more than Rs.27 lakh in the preceding 12 months will be able to benefit from the tax treaty. Treaty has also provided a two-year transitionary phase wherein the capital gains will be taxed at 50% of the existing tax rate; the full domestic tax rate will be applicable from 2019-20, provided the limitation of benefit clauses have been adhered to.

Under the earlier bilateral agreement between India and Mauritius, capital gains from sale of securities have been taxable only in Mauritius, where the levy is close to zero.

One big positive is that there will be no retroactive impact on any investment made till 1 April 2017.The changes in the treaty should be seen in the light of India’s commitment to base erosion and profit shifting and the impending general anti-avoidance rules that will come into effect on 1 April 2017.

How we got Mauritius to agree?

  • India’s determination to implement GAAR from 1 April,2017,
  • Global pressure built up after panama papers and so many other tax heaven in which the global community is against such arrangements, wherein companies get away with double non taxation, and
  • The urgency the government has put on this matter. Negotiation started back from 1996 and pursued until now.
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At present, farm marketing varies not only from state to state but also within the states, with each wholesale mandi being governed by its own Agricultural Produce Marketing Committee (APMC). These mandis require separate licences and they charge different marketing fees. The use of technology is low, which means that there is very little transparency in transactions, which eventually hurts farmers.A pan India trading portal , E-National Agricultural Market (NAM) is designed to create a unified national market for agriculture commodities. The first-ever National Policy for Farmers brought out in 2007 by the United Progressive Alliance government also mentioned this need.  The new integrated electronic platform begins, in a limited way, to address many of these problems. Some features of E- NAM as follows:

  1. Farmers can showcase their produce online from their nearest market and traders can quote price from anywhere.
  2. Results in increased number of traders and greater competition.
  3. This would allow them to escape the cartels that dominate local mandis and strangle the freedom to trade.
  4. Ensure open price discovery and better returns to farmer.
  5. Will cover 585 markets across country in three years during first phase. India has 2477 principal mandis and 4843 submarkets  created by the APMCs.

Limitation in implementation of E-NAM: Wide quality variation in farm produce within a state , and even wider variations across states, pose a challenge for the new market. Commodities with similar standards nationally are few. Wheat in Punjab and Haryana is of medium quality while in MP and  Gujrat it is of superior. An electronic platform can only trade standardise commodities. For the rest , the NAM might not be the right platform. A state agriculture market model launched in 2009 by the NCDEX , provide some lessons in market integration. The Karnataka Model  a joint initiative of govt of Karnataka and NCDEX e- Markets, was the first such initiative.

But it is dangerous to presume that a model that has worked well at the state level will automatically succeed at the national level as well. There are too many prerequisites for that to happen. The three most critical among them are a single wholesale trading licence valid across the catchment area, a single-point levy of market fees, and e-auction as the mode for price discovery. Currently, there are too few warehouses equipped with facilities for weighing, grading and standardisation of stocks sold through the electronic platform. Moreover, aggregators would need to emerge that pool together small marketable surpluses of individual farmers for sale to bulk buyers to attract competitive bidding. The Small Farmers Agribusiness Consortium (SFAC), the nodal agency for running the new electronic platform, can serve as an aggregator through its existing or specially created local units.

Getting states on board for full agricultural marketing reform will also be difficult.

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  • Oil and gas discovery and exploration in difficult areas will be incentivised by giving them calibrated marketing freedom. Govt. is considering to incentivise gas productin from deep water , ultra deep water and high pressure – high temperature areas, which are presently not exploited on account of higher cost and higher risk.
  • 100% deduction on profit for 3 out of 5 yrs for startups set up during April 2016 to march 2019. However MAT will apply in such areas.
  • Massive increase in public spending on infrastructure to 2.21 lakh crore an increase of 22.5% over the last year.
  • Higher Education Financing Authority to setup with initial capital base of 1000 cr to promote higher education. 10 Public and 10 Private institution to emmerge as woorld class teaching and research institution.
  • New discount resolution scheme with low or Zero penalties. Ongoing tax cases can be settled with ease .
  • Under Power sector , The Govt. is drawing up a comprehensive plan , spanning next 15 to 20 years , to augment the investment in nuclear power generation.
  • 25000 cr towards recapitalisation of PSB(Public Sector Banks). Formation of  Bank Board Bureau to be made operational to provide autonomy to banks in appointing top management. And Paring Govt share in IDBI below 50%. Also 100% FDI in Asset reconstruction  companies through automatic route.
  • Monetory Policy Committee to increase transparency and accountability of framing monetary policy.
  •  Reducing blackmoney through a scheme to declare un disclosed income by paying 45% tax  in a given compliance window.
  • Facilitating affordable housing by 100% tax exemption on profit from small projects, not subjecting REITs and InvITs to DDT and encouraging small first time home buyers by deducting additional interest of Rs 50000.
  • Boosting formal sector employment by provisioning Rs 1000 cr towards contributing 8.33% on behalf of all new employees enrolling in EPFO for the first three years of their employment.
  • Plan and Non Plan distinction be done away from 2017-18. A broad understanding over the years has been that plan expenditure are good and non plan expenditure are bad resulting in skewed allocation in budget.
  • Defense allocation is up by 11% over last fiscal RE(Revised Estimates) at 249099 crore.
  • Service tax has been raised by 0.5% to 15%.
  • Duty on tobacco is raised but not on beedis
  • Department of Disinvestment is being renamed as the Department of Investment and Public Asset Management(DIPAM), which  “will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issued such as capital restructuring, dividend, bonus shares.”At the same time, the NITI Aayog will identify CPSEs for strategic sale.
  • Increase in surcharge on superrich, with income of Rs 1 crore and more, from 12% to 15%.
  • Small corporate houses will only have to pay 29% corporate tax only .(reduced by 1%)
  • Dividend received by individual and Hindu Undevided Families (HUF) will be taxed at 10% if the amount exceeds 10 Lakh.

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