FPIs from Mauritius under taxman's lens

Mauritius-based foreign portfolio investors (FPIs) trading Indian derivatives are under heightened scrutiny by the Indian tax department, two people with direct knowledge of the matter said.

- Pavan Burugula

Several FPIs have received queries from the tax department seeking additional details related to ‘commercial substance’ and control residing in Mauritius. A large number of Mauritius FPIs have also been subjected to ‘scrutiny assessment’, a detailed assessment by the tax department to ensure the taxpayer has not understated income or underpaid tax.

In some cases, the tax department has declined treaty benefits to some Mauritius funds that could not fulfil the substance requirements, the people cited above said. Derivative market gains made by FPIs from Mauritius and Singapore are exempt from taxes in India as per India’s double taxation avoidance agreements (DTAAs) with the two countries.

Hence, if any Mauritius fund dealing in Indian derivatives is declined treaty benefit, the fund would have to shell out tax at a rate of over 30% on derivative market gains.

An email sent to the finance ministry remained unanswered till press time.