India removes Cyprus from blacklist of non-cooperative countries

16 December 2016, India’s Central Board of Direct Taxes announced that the notification of Cyprus under section 94A of the Income Tax Act 1961 as a notified jurisdictional area for lack of effective exchange of information, had been rescinded with effect from 1 November 2013.

It followed the signing on 18 November of a revised agreement between India and Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income, along with its Protocol, which will replace the existing treaty signed in 1994.

Both sides have now exchanged notifications of the completion of their respective internal procedures for the entry into force of the revised treaty, which will come into effect in India in the fiscal years beginning on or after 1 April 2017.

The revised treaty will enable source-based taxation of capital gains on shares, except in respect of investments made prior to 1 April 2017. It also provides for a reduction in withholding tax rates from 15% to 10% on royalties, and expands the definition of “permanent establishment.” The article on the exchange of information is updated in line with the latest international standards and a new article to facilitate collection of taxes has been introduced.