In a big relief to foreign investors based in Mauritius, the government is likely to drop a contentious phrase about Tax Residency Certificates coined in the Budget, sources told NDTV Profit.
The government is likely to say that TRC is a "necessary and sufficient" condition for foreign investors based in Mauritius to avail tax benefits in India. The exception will be made for Double Taxation Avoidance Agreement (DTAA) with Mauritius only which accounts for nearly 40 per cent FII investments currently, the sources said.
India currently has DTAAs with 84 countries.
The need for clarification arose after the Budget said that a tax residency certificate "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements (DTAAs).
The amendment had sent the stock markets in a tailspin as tax authorities have so far considered these certificates as enough proof to allow foreign investors registered in countries with these treaties to avoid paying taxes in India.
The finance minister tried to clarify the doubts of foreign investors through a series of conference calls, but there has been confusion that tax authorities would look at not only the TRCs, but also enforce rules under existing DTAAs mandating these foreign investors are the beneficiaries of any investments.
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