8 March 2017

The Protocol to the Avoidance of Double Taxation (DTA) agreement between Singapore and India has come into force and take effect on 27 February 2017, except for Articles 2, 3 and 4 which shall take effect from 1 April 2017.

The Protocol signed on 30 December 2016 gradually phases out the capital gains tax exemption on shares from 1 April 2017, following the same with the India-Mauritius DTA.

The tax treatment for gains on shares acquired on or after 1 April 2017 is as follows:

A. For gains that arise during 1 April 2017 to 31 March 2019:

• Tax rate imposed on such gains will be limited to 50% of the tax rate applicable on such gains in the State in which the company whose shares are alienated is resident.
• Subject to specified conditions including expenditure on operations of the alienator in its residence State of at least S$200,000 in Singapore or Indian Rs5,000,000 in India, as the case may be, for the immediately preceding period of 12 months from the date on which the gains arise.

B. Gains that arise after 31 March 2019 will be taxable in the State in which the company whose shares are alienated is resident.

For shares acquired before 1 April 2017, there is no change to the existing tax treatment on gains arising from the alienation of such shares, i.e.

• Remain taxable only in the residence State of the alienator.
• Subject to specified conditions including expenditure on operations of the alienator in its residence State of at least S$200,000 in Singapore or Indian Rs5,000,000 in India, as the case may be, for each of the 12-month periods in the immediately preceding period of 24 months from the date on which the gains arise.

The Protocol also updates Article 9 on Associated Enterprises to provide for both countries to enter into bilateral discussions for elimination of double taxation arising from transfer pricing or pricing of related party transactions.

The full text is available on the IRAS website.

Source: Inland Revenue Authority of Singapore (IRAS)