India Notifies Amended Mauritius Tax Treaty with New PPT Rules
India introduces the Principal Purpose Test in the amended India-Mauritius tax treaty to prevent tax evasion and misuse of treaty benefits.
In a significant move to curb tax evasion and prevent the misuse of international tax frameworks, the Indian Income Tax Department has officially notified amendments to the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The most critical addition to this revised treaty is the introduction of the Principal Purpose Test (PPT), a mechanism designed to scrutinize the intent behind financial transactions.
The Principal Purpose Test: Closing the Loophole
The introduction of the PPT marks a major shift in how tax treaty benefits are granted to entities operating between India and Mauritius. Under these new rules, tax treaty benefits can be denied if it is determined that obtaining such benefits was one of the primary objectives of a specific transaction or arrangement.
According to the notification, authorities will evaluate the relevant facts and circumstances of a case. If it is reasonable to conclude that an arrangement was structured primarily to secure tax advantages, the benefits will be withheld, unless the granting of those benefits aligns strictly with the core objectives of the treaty provisions. This measure is specifically aimed at preventing tax avoidance and ensuring that the treaty is not used as a tool for artificial tax reduction.
Strengthening Bilateral Economic Ties
While the new rules tighten the grip on tax evasion, the overarching goal of the amended agreement remains the promotion of trade and investment between the two nations. The protocol, which was signed in Port Louis on March 7, 2024, seeks to strike a balance between facilitating legitimate cross-border investments and eliminating opportunities for non-taxation.
The amended agreement officially came into force on August 10, 2026, following the completion of all necessary legal formalities by both India and Mauritius. The Central Government has now implemented these changes under Section 159(1) of the Income-tax Act, 2025, making the revised provisions applicable within India.
Expert Insight on the Amendment
The amendments represent a fundamental revision of the treaty's preamble and the rules governing how entities qualify for benefits. Riaz Thingna, Partner in Tax at Grant Thornton Bharat, noted that the revised treaty provides express clarity on its mission.
"The revised treaty expressly clarifies that its objective is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance," said Thingna.
He further emphasized that the introduction of the Principal Purpose Test means that the intent behind an arrangement will now be under the spotlight. However, he also cautioned that these new amendments must be interpreted alongside previous clarifications provided by the Central Board of Direct Taxes (CBDT), particularly regarding grandfathering provisions.