The Government has been taking keen steps towards increasing the foreign based investment in India. The Reserve Bank of India Report 2018 has highlighted that the country has been recognized as one of the most favourable destinations for carrying out business. Promoting and considering the aspect of raising the foreign funds, the Government has also been cautious in preventing the illicit transactions.
Mauritius: An investment friendly neighbour
India has signed a double taxation avoidance agreement with Mauritius which makes it the most preferred route for investment in India, including investment via Foreign Portfolio Investment (hereinafter referred to as “FPI”), owing to the exemptions offered in respect of tax payment.
This raises great concern for the fact that the money invested from Mauritius may be the money illegally laundered from India with a view to avoid tax.
New Government proposal
The Government is in the process of formulating to meet stricter disclosure standards and greater scrutiny as well as regulatory hurdles with respect to foreign portfolio investment from countries which are not members of the Financial Action Task Force (which is a global organization or anti-money laundering and combating the financing of terrorism) including Mauritius.
While the market regulator, Securities Exchange Board of India, has introduced a regime of stricter compliance norms in respect of FPI, the proposed regulations are aimed at curbing round-tripping of funds by residents with the help of Non-Resident Indian relatives and associates.