The Central Board of Direct Taxes (CBDT) has notified a protocol amending the India-Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a provision that allows treaty benefits to be denied if obtaining them was one of the principal purposes of an arrangement or transaction.
The notification, issued on Wednesday, states that the protocol will come into force from August 10, 2026.
Under the new provision, treaty benefits will not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction that resulted, directly or indirectly, in that benefit.
However, the provision allows an exception if it is established that granting the benefit in the circumstances would be consistent with the object and purpose of the relevant provisions of the tax treaty.
The amendment introduces a Principal Purpose Test (PPT), allowing tax authorities to examine whether an arrangement was structured, at least in part, to secure treaty benefits and whether granting those benefits would be consistent with the treaty's intent.
"The notification brings the India-Mauritius tax treaty in line with comparable treaty provisions in jurisdictions such as Singapore and also aligns the Mauritius treaty with the provisions of BEPS Pillar 1," said Keyur Shah, head of tax at Alvarez & Marsal India.
The protocol also explicitly states that the agreement is intended to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. It specifically refers to treaty- shopping arrangements designed to secure tax relief indirectly for residents of third jurisdictions.
CBDT has issued the notification for the protocol amending the India-Mauritius DTAA.
Amit Maheshwari, managing partner at AKM Global, said, "The notification provides that a benefit under the DTAA shall not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the DTAA.”
The amendment is intended to curb the misuse of the tax treaty, including arrangements that route investments through Mauritius to obtain tax advantages that may not otherwise be available.
The protocol was signed on March 7, 2024, and amends the India-Mauritius tax convention originally signed on August 24, 1982, and subsequently amended in 2016.
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