Black Money in India
Round-Tripping and Tax Havens
How Indian money sent to tax havens like Mauritius returned as foreign investment, the Mauritius treaty loophole, and its 2016 amendment.
Round-tripping means sending money abroad and bringing it back disguised as foreign investment.
How
- Money leaves India.
- It’s parked in a company in a tax haven.
- It returns as FDI or portfolio investment, often with tax benefits.
Mauritius
- Mauritius was long a top FDI source for India.
- The India-Mauritius tax treaty exempted capital gains, making it attractive.
2016 amendment
The treaty was amended in 2016 to tax capital gains in India from 2017.
GAAR
General Anti-Avoidance Rules from 2017 let authorities deny benefits to arrangements designed to avoid tax.
Leaks
The Panama Papers (2016) and Pandora Papers (2021) named Indians with offshore entities.
The Mauritius route
An investor sets up a Mauritius company to invest in Indian shares, avoiding capital gains tax until 2017.
Thinking all FDI is foreign money
Some is round-tripped Indian money.
Key takeaways
- Round-tripping disguises Indian money as FDI.
- Mauritius was a top route.
- The treaty was amended in 2016.
- GAAR began in 2017.
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