Replying to a debate on the Finance Bill in the Rajya Sabha, Mr Jaitley said government has been trying to renegotiate the treaty with the island nation since 1996.
"Finally in the last one year we had four rounds of discussion. We have been able to renegotiate and as part of the renegotiation, we are phasing out some of those (round tripping) aspects."
"And hopefully the fears which members had that the route can also be partly used for round tripping..., in our effort against black money we have even gone ahead and tried to minimise the dangers of that particular situation," Mr Jaitley said.
The minister's statement was in response to concerns raised by several members about round tripping of funds by Indians wanting to avoid paying domestic taxes.
Under the revised treaty, from April 1, 2017, companies routing funds into India through Mauritius will have to pay short-term capital gains tax at half the rate prevailing during the 24-month transition period. Full rate, currently at 15 per cent, will kick in from April 1, 2019.
"... so that there is no immediate impact on the market, we have grandfathered all past and investments which will take place till April 1, 2017," Mr Jaitley said.
The benchmark BSE Sensex fell 175.51 points to 25,597.02 as foreign funds cut down their exposure over fears that equity inflows would take a hit after India's move to impose capital gains tax on investment through Mauritius.
After Mr Jaitley's reply, the Rajya Sabha approved the Finance Bill and the Appropriation Bill by voice vote, thus completing the budgetary exercise in Parliament.
In his reply, Mr Jaitley referred to the Supreme Court order earlier in the day, asking the government to create a disaster mitigation fund, in addition to National Disaster Relief Fund (NDRF) and State Disaster Relief Fund (SDRF), to deal with drought.
He said the Appropriation Bill had been passed and wondered from where the extra money would come to comply with the directions of the apex court.
"Can't you see, step up step, brick by brick, the edifice of India's legislature is being destroyed. And outside the Appropriation Bill, we are being told to create this levy this fund."
"We will have budget-making going outside Parliament and if there is a taxation dispute between Centre and states, a major party says now let the judge decided, so taxation power also goes," the minister said.
Taxation is a political issue and should be sorted out politically, he said, adding that this power cannot be handed over to the courts.
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