Previous Year Question
Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A): During 2023-24, Singapore emerged as the largest source of FDI to India.
Reason (R): The India-Mauritius Tax Treaty amendment has brought a major shift in countries as major sources of FDI to India.
Select the correct answer from the codes given below:
Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(A) is false, but (R) is true
Both (A) and (R) are true and (R) is the correct explanation of (A)
(A) is true, but (R) is false
Correct Answer: C
Detailed Solution
Assertion (A) is correct. In FY 2023-24, Singapore was the largest source of FDI into India, with inflows of approximately US$ 11.77 billion.
Reason (R) is also correct. Historically, Mauritius was a major route for FDI into India, partly because of the capital-gains tax treatment available under the India-Mauritius Double Taxation Avoidance Agreement.
However, the India-Mauritius Tax Treaty was amended in 2016, enabling India to apply source-based taxation to capital gains arising from the transfer of shares of Indian companies by Mauritius residents. The amendment was also intended to tackle treaty abuse, round-tripping and double non-taxation.
This contributed to a significant change in the composition of India's major FDI-source countries. A WTO Trade Policy Review hosted by the Department of Commerce notes that FDI from Mauritius subsequently declined and Singapore overtook Mauritius, with the shift partly attributable to the revision of the India-Mauritius tax treaty.
Thus, the Reason is not merely independently correct; it also provides an important explanation for the shift from Mauritius towards Singapore among India's major FDI sources.
Current Status (2026): The trend continues. In FY 2025-26, Singapore remained India's largest source of FDI, with inflows of about US$ 19.8 billion. Cumulative FDI from Singapore during April 2000-March 2026 stood at approximately US$ 194.68 billion.