After years of effort, India has managed to renegotiate its tax treaty with Mauritius , marking a bold step by the government to firmly shut the door on a pact that may have cost the country much by way of revenue. ET takes a look back at the accord that's more than three decades old.

WHY INVESTORS CAME VIA MAURITIUS: If a company resident in Mauritius buys shares in an Indian company... Any capital gains made on sale will be taxed only in Mauritius Mauritius does not impose capital gains tax on offshore companies This means no capital gains tax is paid on Mauritiusrouted investments This has been called 'double non-taxation'
Here are the various facets of Mauritius tax treaty

WHAT WAS THE BIG WORRY: Round tripping Instead of direct investment, Indian money going out and being invested via Mauritius India denied taxes that it should have got.

Treaty shopping Third-country Investors setting up shell companies in Mauritius to gain benefits No real presence in Mauritius.

Discriminatory to local investors Local investors pay tax but foreign ones don't because of the treaty.

Identity of investors not known The Mauritius route allowed investors to hide behind corporate structures.

KEY CHANGES IN THE TREATY: Capital gains on profits to be taxed India gets right to tax capital gains made by investors on shares of Indian companies

Phased rollout No tax on investment made before by March 2017 Shares bought on or after April 1, 2017.50% of applicable tax if sold between April 2017 and March 2019 Full tax rate applied if sold after April 2019.

No tax on other instruments The new regime applies to only profit made on shares Debentures, mutual funds , derivatives and convertibles not covered.Grandfathering benefit Investment made before April 1, 2017, will get full benefit of capital gains exemption.

Lower interest income Mauritius banks to pay 7.5% interest on debt investment after March 31, 2017.Interest on earlier loans exempted from tax. Limitation of benefit.

Investor has to pass 'main purpose' and 'bona fide business' tests Such investors eligible for lower transition tax for two years Company spending less than Rs 27 lakh in 12 months will be considered shell company.

Sourced-based taxation Other incomes will be based on source from where derived

WHAT DOES IT MEAN FOR US: Chance for India to clean its capital gains tax policy

Mauritius tax treaty that gave huge benefits to foreign investors denied India flexibility in taxing capital gains domestic and foreign investors on par, the government now gets room Real FDI MUCH OF MAURITIUS FDI was believed to be Indian money. With the loophole closed, there will be a clearer picture on overseas investment End of confusion MAURITIUS ROUTE HAS been under much dispute and subject of speculation. That comes to end India gets more tax .