The third protocol amending the existing India-Singapore Double Taxation Avoidance Agreement (DTAA) entered into force on Monday, Singapore’s tax authorities have said. This would mean that the provisions provided in the third protocol — signed in December 2016 — have become law in the island country, legal experts said.

Singapore was the largest foreign direct investor into India for the period April 2015 to March 2016, and one of the largest portfolio investors in Indian markets.

Following a meeting between Singapore Prime Minister Lee Hsien Loong and Prime Minister Narendra Modi in October 2016, it was decided to revise an existing DTAA. Both the countries later agreed to phase out the capital gains tax exemption gradually, and also committed to find new ways to promote bilateral investments.

It may be recalled that the updated tax agreement (protocol) preserves the existing tax exemption on capital gains for shares acquired before April 1, 2017, while providing a transitional arrangement for shares acquired on or after April 2017.

For shares acquired on or after April 1, 2017, there will be a two-year transition period.

Transition period In this transition period, capital gains from such shares acquired on or after April 1, 2017 will be taxed at 50 per cent of domestic tax rate if the capital gains arise during April 1, 2017 to March 2019.

Capital gains For gains that arise after March 31, 2019, it will be taxable in the State in which the company whose shares are alienated is resident.

Shailesh Kumar, Director-Direct Taxation, Nangia & Co, a CA firm, told BusinessLine that India is yet to notify the protocol. Once this is done and Singapore is notified about it, the provisions will become law in India as well, he added. Indications are that the protocol will get notified by the Indian side much before March 31.

Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, a law firm, said: “As per Article 6 of protocol, both states have to complete the procedures required in its law for bringing into force this protocol and notify each other about such completion. The protocol shall come into force on later of such notifications.

“If such notification is pending by either State by March 31 2017, then the protocol will come into force in April 1, 2017.”