Interest Payment to Mauritius: 7.5% Withholding Tax

In earlier article “WHT (Withholding Tax) on Interest on Buyers Credit” and “Withholding Tax (WHT) on Suppliers Credit Transaction”, we had discussed that if buyers credit or suppliers credit is arranged from Mauritius based bank / branches, there was no withholding tax on interest payment as per Double Taxation Avoidance Agreements (DTAA).

India-Mauritius Tax Treaty was amended on 10 May 2016 and got effective from 01 April 2017. In this article, only amendment related to Interest Payment  (Article 11) is covered.

The Protocol provides for a shifting of taxing rights to India on interest income earned by Mauritius-resident banks from debt-claims and loans made as from 1 April 2017. Currently, such interest income is exempted from tax in India. However, the withholding tax is limited to 7.5% of such interest income.

In addition, interest income of Mauritius-resident banks on debt claims or loans existing as at 31 March 2017 shall remain tax exempt in India, irrespective of the maturity date of such instruments.

In simple terms

  1. All buyers credit funded post 31 March 2017, 7.5% WHT will be applicable if funds are arranged from Mauritian Resident Bank.
  2. Provision is for Resident Bank. Thus, Indian Bank branches in Mauritius shall not be covered.

Which Banks will be Impacted

  1. All Mauritius based bank.
  2. Indian Bank Subsidiary
  • SBI (Mauritius) Ltd: 7.5% WHT applicable
  • BOB Mauritius (Branch): Not Applicable
  • Afraisia Bank: 7.5% WHT applicable
  • State Bank of Mauritius Ltd : 7.5% WHT applicable
  • HSBC Bank(Mauritius) Limited: 7.5% WHT applicable
  • The Hongkong and Shanghai Banking Corporation Limited:  ??? (need to check)
  • Standard Chartered Bank (Mauritius) Ltd : 7.5% WHT Applicable.

Impact on Importers

Henceforth if Buyers Credit is arranged from Mauritius based Bank, Importers will have to deduct Withholding Tax (WHT) as per above provision.

Reference

  1. India – Mauritius DDTA and Amendments.
  2. Updates on India’s Tax Treaties With Mauritius and Its Impact on the India-Singapore Tax Treaty
  3. India-Mauritius Tax Treaty: An end and a New Beginning
  4. Protocol to the India-Mauritius Double Tax Treaty

2 thoughts on “Interest Payment to Mauritius: 7.5% Withholding Tax”

  1. We are availing 6 months usance buyers credit from standard chartered marutius will we be hit by Withholding Tax? please eloborate the same

    1. As per my checks, Standard Chartered Bank (Mauritius) Ltd is subsidiary of Standard Chartered Bank PLC London. As it is company incorporated in Mauritius, its tax status should be resident. Thus 7.5% of WHT will become applicable on interest payment for buyers credit.

      * Please ask for Tax residency certificate from SCB Mauritius to do additional checks.

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