Round Tripping

Round tripping is a buzz word among Indian financial regulators these days with maximum FDI pouring into India through Mauritius, a heaven for tax evaders. In the year 2009-10 43% i.e. 10.4 billion of the total 25.9 billion FDI inflows to Inia were chanellized through Mauritius. The source of origin of FDI inflows into India has made the regulators to suspect if it is actually the Indian capital being reinvested in form of FDI nthrough tax heavens and is India being victimized by round tripping. Round Tripping refers to the capital belonging to a country leaving the country and then being reinvested in form of Foreign direct investment.FDIs have several benefits in form of tax benefits, administrative support & access to financial services over domestic investments provided to attract foreign capital. These are the benefits that lure Indian investors to indulge into Round tripping. Apart from this round tripping becomes profitable if the property laws are weak in one of the countries concerned. It helps citizens in evading tax in India.

Round Tripping is not prohibitted in India. However it leads to considerable loss of revenue under capital gains tax. It also involves a company selling "an unused asset to another company while at the same time agreeing to buy back the same asset or similar asset at same prices". This helps in inflating the market capitalization of the company temporarily.
Round tripping was recently in news in India as Securities commission of India (SCI) has decided to delve into incidences of round tripping. This probe has been triggered off after round tripping came into line in Mudajaya Group that was reported to have overpaid for its investment in an independent power plant plant (IPP)  project. Report from the group's auditor Erst & Young shows movement of fund between Mudajaya & IPP project related entities.