NEW DELHI: India and Cyprus have signed the revised tax treaty, along with the protocol, plugging a gap that allowed investments routed through the country to escape tax in India.The protocol signed on Friday is expected to come into effect in India, in respect of income derived in fiscal years beginning on or after April 1, 2017.Amended tax treaty provides for source-based taxation of capital gains arising from alienation of shares, implying that capital gains made on investment in shares of Indian companies will be taxed in India.It provides for grandfathering of investments made prior to April 1, 2017, which would continue to be taxed in the country of residence.India has similarly updated its tax treaty with Mauritius, which has a 32.8% share in FDI into India since April 2000. Cyprus has a 2.88% share over this period.ndia Cyprus tax treaty is a welcome step. While it aligns yet another tax treaty to India's stand on moving towards a source based system of taxation (taxing capital gains on Indian shares, in India), it provides certainty to investors on the grandfathering of existing investments,” said Gautam Mehra, Leader Tax and Regulatory, PwC.Amended tax treaty also expands the scope of ‘permanent establishment’ and reduces tax rate on royalty from 15% to 10% to align with India's domestic tax rate.Amended tax treaty also provides for assistance in collection of taxes and provides for effective exchange of information on tax matters including bank information, according to an official statement. India had declared Cyprus a non-cooperative jurisdiction when it showed reluctance to revise the tax treaty.This has resulted in a automatic mandatory levy of a 30% withholding tax and applicability of Indian transfer pricing provisions to transactions with Cypriot entities.