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Cyprus has been formally removed from India's tax blacklist and will now not be considered as 'non-cooperative' jurisdiction for income tax purposes.
This Central Board of Direct Taxes (CBDT) has issued a notification, rescinding it's executive order blacklisting the island nation from November 1, 2013.
Cyprus--a popular tax haven--was the only country to have been blacklisted by India as a non-cooperative jurisdiction, due to lack of effective exchange of information.
The latest CBDT move should come as music to the ears of Indian taxpayers transacting with those in Cyprus.
Commenting on the development, Abhishek Goenka , Partner--Direct Tax, PwC said this will come as a "big relief" to investors and Indian companies that have raised capital from Cyprus investors.
"However, this (latest CBDT move) is not retroactive (as was expected and in some way committed by India in July) and that comes as a big dampener," Goenka said.
The Centre's move to remove Cyprus from tax blacklist comes on the heels of the two countries firming a new tax treaty.
Since November 1, 2013, Cypriots were facing higher withholding taxes (30 per cent) and the consequences of transfer pricing provisions, among other inconveniences on account of the blacklisting.
India and Cyprus had entered into a tax treaty in 1994 and are obliged to exchange information. On November 1, 2013, the Finance Ministry notified Cyprus as a non-cooperative jurisdiction following failed discussions to secure the desired level of cooperation.
Rakesh Nangia, Managing Partner, Nangia & Co, a CA firm, said: "As awaited the government has rescinded the notification issued under Section 94A treating Cyprus as a non-cooperative jurisdiction".
Interestingly, the notification has been withdrawn prospectively, keeping the actions taken under the notification till December 14, 2016 unaffected, Nangia said.
This could be because taxes deducted at source under the notification and transfer pricing documentation maintained in lieu of the notification, cannot be undone, he added.
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