How will the new Singapore-India DTA impact NRIs?

Singapore and India’s Double Taxation Agreement (DTA) was one of the most discussed item among NRIs over the New Year weekend. The crucial signing on December 30, 2016, was done during Singapore Deputy Prime Minister Tharman Shanmugaratnam's recent India visit. 

To have a better understanding of how it will affect the NRIs and NRI owned companies, we reached out to Abhijit Ghosh, India Desk Leader & Tax Markets Leader, PwC Singapore. Abhijit breaks it down for Connected to India readers.

Reportedly, Singapore was the largest foreign direct investor into India for the period April 2015 – March 2016. Photo courtesy:

Welcome move: It is important to understand that the amended Protocol deals with capital gains arising on alienation of shares in a company.

The signing of the new Protocol is a welcome move as it sets to rest uncertainty regarding the future taxation regime that would be applicable to investments into India by Singapore-based entities. Benefits under the DTA can be availed by both individuals as well as business entities. Also, Singapore was the first country with which India has signed a Comprehensive Economic and Cooperation Agreement (CECA) in 2005.  The signing of the Strategic Partnership Agreement in November 2015 further elevated the relationship to the next level.   

Abhijit Ghosh, India Desk Leader & Tax Markets Leader, PwC Singapore simplifies the DTA for Connected to India readers. Photo courtesy: PwC

The Indian Government is currently pursuing various initiatives (Make in India, Smart City, Skill India, etc.) which not only require capital but also call for the implementation of best practices. Singapore is poised to play an ideal partnership role in India's growth story, given its physical proximity and as a funnel for good capital being channelised into India. To this effect, it may be prudent that both the Governments continue to explore mutual symbiotic opportunities with the further utilisation of CECA or any other bilateral economic partnerships which would provide further impetus to the cause. 

How does this impact the NRIs living in Singapore?
In accordance with the grand fathering provisions of the new protocol to the Singapore-India DTA, Singapore resident investors, including NRIs or NRI owned Singapore resident companies with substantive business activities will continue to enjoy exemption from Indian capital gains tax on disposal of shares of unlisted Indian resident companies acquired before 1 April 2017. 

Further, as per the new protocol any gains on disposal of shares acquired on or after 1 April 2017 may be taxed in India but at no more than half of the applicable rate provided such gains on disposal of shares of an unlisted Indian resident company are derived between 1 April 2017 and 31 March 2019. 

The new protocol also provides the basis for making the corresponding adjustment in Singapore when a transfer pricing adjustment is made by India to reflect adherence to the arm's length principle for related party transactions. This, in effect, will help to avoid double taxation exposure for Singapore-based investors. 

What will be the impact of the DTA in bilateral trade and investments? 
Admittedly, the objective is to offer more impetus in supporting the growth of bilateral trade and investments between Singapore and India.  It is worthy to note that Singapore was the largest foreign direct investor into India for the period April 2015 – March 2016 and the largest portfolio investment into India was also made from Singapore. 

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