Taxability of Mutual Funds under the India-Singapore DTAA

 Key Points

1. Article 13: Capital Gains Taxation
• Article 13(4): Exempts capital gains from taxation in India for residents of Singapore unless the gains pertain to immovable property, PE business property, ships/aircraft, or specific shares.
• Article 13(4A): Shares acquired after April 1, 2017, are taxable in India, with gains limited to amounts exceeding the fair market value as of April 1, 2017.
• Article 13(4B): Exempts capital gains from Indian taxation if shares are part of a Singapore PE's business property.
• Article 13(5): Gains from mutual funds are classified as "other property" and are taxable only in Singapore.
2. Article 24: Limitation of Benefits (LOB) and Remittance Condition
• Limits DTAA benefits if the Singapore entity is a shell or conduit company.
• Requires a minimum operating expenditure of SGD 200,000 in Singapore over the preceding 12 months to prove substantive business activity.
• Remittance Requirement: Applies only to capital gains on shares under Articles 13(4A) and 13(4B), not mutual funds.
3. Judicial Precedents
• CIT v. Citicorp Investment Bank (2023): Clarified that the remittance requirement does not apply where Singapore taxes on an accrual basis.
• DCIT v. D.B. International (Asia) Ltd (2018): Reinforced that treaty benefits should not be denied when Singapore's tax system operates on an accrual basis.
4. BEPS and MLI Considerations
• The DTAA maintains its own LOB clause without modification from BEPS or MLI.
• However, BEPS emphasizes substance over form, reinforcing Article 24’s anti-abuse measures.
5. Practical Implications for Singapore Residents
• Equity Mutual Funds & Debt Mutual Funds: Taxable only in Singapore under Article 13(5), with no remittance condition.
• Shares of Indian Companies: Taxable in India, subject to the LOB and remittance conditions.

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Conclusion

• Capital gains from equity and debt mutual funds are taxable only in Singapore, not India.
• The remittance condition applies only to shares, not mutual funds.
• Judicial precedents confirm that Singapore's taxation on an accrual basis bypasses remittance conditions for mutual fund gains.