The Finance Ministry has sought a fresh look at the double taxation avoidance treaty that New Delhi has with many countries so as to make it favourable for Indian investments abroad as much as it is for incoming capital.
"We are working very hard on a model tax treaty as we have realised that today India not only imports capital but also invests abroad. So the very nature of DTA (double taxation avoidance treaty) has to change," Economic Adviser to Finance Minister Parthasarthy Shome said today.
While speaking at a conference on taxation, he said: "We are now looking at what is to our benefit and advantage."
On the need for review of DTAs, Shome said the government wanted to protect not only revenue at a time when foreign capital came to India and the returns go abroad, but also when domestic companies invest abroad.
New Delhi too wants to encourage such firms investing abroad to send their profits back to India through market mechanism, he said.
Indian companies have invested over 20 billion dollars abroad over the past one year.
Finance Minister P Chidambaram has also said that the government was in favour of reviewing some provisions of the DTA treaty with Mauritius, as some Indian companies were involved in round-tripping of funds.
The Finance Ministry has already tried to tighten the rules regarding origin of residence, while negotiating DTA with some other countries.