Royalty and technical fees will be taxable at 20% instead of 30%

16. Royalties and Fees for technical services

Non-residents including foreign companies are liable to pay tax @ 30% on gross amount of royalties and fees for technical services. The rate of tax has been reduced to 20%. The lower rate of tax will be payable in case of those agreements which are entered into on or after 1st June, 1997. For old agreements, the rate continues at 30%.

Tax on long term capital gains for NRIs has been reduced to 10%

17. Long Term Capital Gains

NRIs are liable to pay tax @ 20% in case of long term capital gains, if the same are earned by selling specified assets. Specified assets means shares, debentures of Public companies, and securities of Central Government. These assets should have been acquired in foreign exchange.

NRIs have been suggesting that the rates are higher that those for FIIs who are liable to tax only @ 10%. Keeping in view their demand, it is provided to tax the NRIs @ 10% on Long Term Capital Gains.

If there are any other long term gains, the same will be continued to be taxed @ 20%.

The rate in case of Foreign companies also continues at 20%.

18. Tax Havens : Mauritius, Malta and Cyprus.

India has signed double tax avoidance treaties (DTA) with three tax havens - Mauritius, Malta and Cyprus. NRIs and foreigners investing through these countries get tax reliefs in the form of lower tax on dividend, and zero tax on capital gains including short term capital gains.

These reliefs, however are not free from hurdles. Coming through these countries may amount to "Treaty Shopping". Income-tax department is against "Treaty Shopping" and there have been some controversies. Authority for Advance Rulings had given a ruling in the case of "Nat West" - which caused considerable concern and people were worried whether Mauritius route is open or not. Then came the ruling in the case of "AIG" which gave confidence in the Mauritius route. Both the decisions together, probably declare that "Treaty Shopping" will not be taken lightly but if there is a genuine presence in these countries, than the DTA relief will be available.

Finance Minister has removed many of the tax hastles in NRI investments.

18.1 All dividends declared by Indian companies will be tax free in the hands of the shareholder. This exemption applies to all shareholders - whether Indian residents, non-residents, foreigners; individuals or companies.

18.2 Tax on long term capital gains for NRIs is reduced to 10%. This relief is available only to individual non-residents of Indian origin. It is NOT available to Overseas Corporate Bodies.

18.3 For large projects of infrastructure investments, venture funds are encouraged. These venture funds have total exemption from tax on dividends and long term capital gains. In some cases, even interest is exempted.

For all these investments, coming through a tax haven has clearly become unnecessary. The costs of setting up companies in these countries; and then still taking a risk - whether the planning will succeed or not; may be more than the taxes payable, if any. In Mauritius route, NRIs try 0% tax. However, if the planning fails, they may end up paying, instead of 10%; tax @ 48% or 20%.

There will still be some people who will always need an offshore centre. For diverse reasons, investors need certain secrecy and considerable flexibility - which the Indian legal and regulatory systems do not provide. In such cases DTA relief is of secondary importance. When DTA relief is not important, NRIs have a range of offshore centres available all over the world. Mauritius is costlier than many such offshore centres. It is high time that Mauritian authorities and professionals should compete with other tax havens.