Vigil on Foreign Direct Investment flows from Mauritius Increased

The Indian government in February 2011 decided to increase vigil on all foreign direct investment (FDI) flows from Mauritius. The decision was taken by the government in the backdrop of  growing concern that black money stashed abroad by Indians is being routed back into the country through the island nation, Mauritius. The income-tax department has deputed an official in Mauritius to coordinate with the government and the revenue authorities there to ascertain details of funds that have been invested in India. The department also decided to scrutinise all FDI proposals from the island nation that go to the Foreign Investment Promotion Board for clearance. The income-tax department will also intensify scrutiny and conduct special audit in those cases where a corporate entity in a sector, which is on the automatic FDI approval route receive funds from Mauritius.

Mauritius is a favourite with those looking to invest in India as the tax treaty between the two countries provides that capital gains arising in India from the sale of securities can be taxed only in Mauritius. Since Mauritius does not tax capital gains, this means zero taxation on such gains.
SK Jha, advocate and former chief commissioner, income-tax filed a public interest litigation challenging the India-Mauritius Double Taxation Avoidance Agreement. In a report released on 28 January 2011 the Organisation for Economic Co-operation and Development (OECD) mentioned that Mauritius has missing elements in the legal framework such as accounting information on some of the offshore companies.

The main opposition Bharatiya Janata Party launches an attack on the United Progressive Alliance government for allegedly shielding those having bank accounts in tax havens and Switzerland.  the Supreme Court adopted a tough posture in response to a public interest litigation filed by lawyer Ram Jethmalani criticising the government for its reluctance to reveal the names of Indians who held European bank accounts between 2002 and 2006.