Various factors underlie a foreign investor’s decision to invest in a jurisdiction other than its own. These include entry conditions, exit options and ease of repatriation of investment and return on investment. Since dividends, interest and capital gains on sale of shares, constitute the principal source of returns on investments, the tax regimes of the investee country and the investor’s country and the tax-centric agreements between such jurisdictions, become key considerations driving investments into a country.
To encourage foreign trade and investments into India, India has entered into double taxation avoidance agreements (DTAA) with around 65 countries. The DTAAs between India and certain countries have more beneficial tax provisions on the aspect of capital gains tax as compared to those with certain other countries resulting in the first mentioned countries becoming preferred routes for investments into India. Mauritius, Cyprus and Singapore are some examples of such jurisdictions and have come to be referred to as ‘tax havens’ for investments into India.
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