Shaken by the India-Mauritius tax quake

MAURITIUS, a tiny tropical island, is India's largest investor, contributing to one-third of the total foreign direct investment (FDI) to a country about 1,600 times its size. That may be surprising for some, but Mauritius has been a preferred holding jurisdiction for multinational companies to structure their investments into India. It is no secret that this is largely on account of the favourable tax treaty between the two nations.

Currently, under the India-Mauritius (I-M) treaty, capital gains arising from the sale of shares of an Indian company are taxed only in…