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The Income Tax Department has notified amendments to the India-Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a principal purpose test (PPT) that allows tax treaty benefits to be denied if obtaining such benefits was one of the main purposes of a transaction or arrangement.
According to the notification, treaty benefits will not be granted if, based on the relevant facts and circumstances, it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction, unless granting the benefit is consistent with the objectives of the relevant treaty provisions. The amendment aims to prevent the misuse of tax treaty provisions to avoid or reduce taxes through tax evasion or avoidance. The notification also states that India and Mauritius must inform each other after completing the legal procedures required to implement the amended agreement. The protocol will come into force on the date of the later of the two notifications. India and Mauritius signed the protocol to amend their existing DTAA on March 7, 2024, in Port Louis. The agreement aims to prevent tax evasion while promoting trade and investment between the two countries. The amended agreement came into force on August 10, 2026, after both countries completed the required formalities. The Central Government has now notified the amendments under Section 159(1) of the Income-tax Act, 2025, making the revised provisions applicable in India. Commenting on the development, Riaz Thingna, Partner, Tax, Grant Thornton Bharat, said the amendments revise the preamble and the provisions governing entitlement to benefits under the India-Mauritius DTAA. "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," Thingna said. He added that the notification introduces the principal purpose test, under which treaty benefits may be denied if obtaining those benefits was one of the principal purposes of an arrangement or transaction. "These amendments have to be read in light of the clarifications earlier provided by CBDT, particularly on grandfathering," he said. (ANI)
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