In a written reply to a query in the Rajya Sabha, Minister of State for Finance S S Palanimanickam said the government has proposed to review the India-Mauritius Double Taxation Avoidance Convention (DTAC).
"There was unwillingness on the part of Mauritius to cooperate in addressing this problem. However, it was recently agreed to convene the next meeting of the Joint Working Group on the DTAC. We have now proposed next round of taxation, to which Mauritius is yet to respond," he said.
Around 42 per cent of FDI and about 40 per cent of FII fund flows into India are routed through the island nation.
India has proposed to amend the DTAC with Mauritius to prevent abuse of the treaty and strengthen the mechanism for exchange of tax information.
Palanimanickam said that recently, both countries agreed to convene the next meeting of the Joint Working Group, which comprises members from the Indian and Mauritius governments.
The group was constituted in 2006 to put in place adequate safeguards to prevent misuse of the India-Mauritius DTAC. Six rounds of discussions have taken place so far.
According to the pact, capital gains from the sale of shares by residents of Mauritius in India would be liable to tax only in that country. As Mauritius does not have capital gains tax, there is no burden on investors pumping money into India through a circuitous route.