India will start imposing capital gains tax on investments coming from Singapore from April and fully withdraw exemptions in two years as the two countries agreed to amend a decade-old treaty after New Delhi rolled back similar concessions to Mauritius and Cyprus earlier this year.
With the amendments, announced by Finance Minister Arun Jaitley on Friday, investors based in Singapore will no longer benefit from tax exemptions on capital gains taxes.
Changes to the treaty with the Asian financial centre had been widely expected after India this year similarly re-drafted a 33-year old tax treaty with Mauritius.
The tax treaty between India and Singapore had a provision that any changes in the Mauritius treaty would automatically apply to the one with the Asian country.
The move to tighten tax treaties is part of Prime Minister Narendra Modi`s anti-corruption drive, which includes tightening loopholes for firms or rich individuals setting up a presence in jurisdictions with tax exemption treaties.
Regulators have long suspected rich Indians were routing cash through these tax jurisdictions, and channeling money back to India in a practice known as "round tripping".
"We are able to give a reasonable burial to this black money route," Jaitley told reporters at a news briefing.
Capital gains tax will be imposed on investments from Singapore that are made from April onwards. The tax rate will be half the prevailing Indian rate for the next two years and rates will then be equated by April 2019. Jaitley said.
Singapore has been an increasingly popular source of foreign investment into India.
Foreign direct investment (FDI) flows from Singapore stood at $50.6 billion between April 2000 and September 2016, contributing more than 16% to total capital inflows during that period, second only to Mauritius.
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