Mauritius may lose its status as a so-called tax haven if the island accepts an Indian proposal to crackdown on illegal fund transfer routes, according to outlookindia.com.

Concerned over the high volume of questionable money entering the country as investment, authorities in New Delhi have approached the Mauritian government to curb such fund transfers, the report said.

"The country has become a tax haven for many Indians to stack ill-gotten funds and then transfer them as investment. We hope that the Mauritius government will respond to our proposal as it has become essential to snap the route," a government official said.

The Finance Ministry is reviewing its 1983 Double Taxation Avoidance Agreement with Mauritius, the report said.

Financial enforcement agencies probing high-value cases like the IPL, 2G spectrum allocation, Commonwealth Games and many other such deals, have traced money in these matters to Mauritius. These funds were diverted in order to evade taxes under the DTAA.

At present, capital gains are fully exempted from taxation in Mauritius and the DTAA between the two countries mandates that such gains from the sale of shares will be taxed only in the country of residence of an investor, the report added.