India-Mauritius tax treaty amended to curb treaty abuse; PPT test introduced

SENSEX 74,729.27

+ 413.66

NIFTY 23,146.15

+ 148.80

CRUDEOIL 9,291.00

+ 6.00

GOLD 148,385.00

+ 896.00

SILVER 213,594.00

+ 2,934.00

SENSEX 74,729.27

+ 413.66

NIFTY 23,146.15

+ 148.80

NIFTY 23,146.15

+ 148.80

CRUDEOIL 9,291.00

+ 6.00

CRUDEOIL 9,291.00

+ 6.00

GOLD 148,385.00

+ 896.00

'; } document.getElementById("lgdv").innerHTML = htmlElements; } function numberformat(i) { return Number(parseFloat(i).toFixed(2)).toLocaleString('en', { minimumFractionDigits: 2 }) } async function gatherResponse(response) { const { headers } = response; const contentType = headers.get('content-type') || ''; if (contentType.includes('application/json')) { return await response.json() } return response.text(); } function getWidth() { if (Math.max(document.body.scrollWidth,document.documentElement.scrollWidth,document.body.offsetWidth,document.documentElement.offsetWidth,document.documentElement.clientWidth) > 991) { document.getElementById("mob").style.display = "none"; document.getElementById("lgdv").style.display = "block"; } else { document.getElementById("mob").style.display = "block"; document.getElementById("lgdv").style.display = "none"; } } getWidth(); THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.

The change places greater emphasis on the purpose and commercial substance of transactions when authorities assess claims for treaty relief.

By PTI

Updated - October 16, 2026 at 05:17 PM. | New Delhi

India and Mauritius have amended their double taxation avoidance agreement to introduce a Principal Purpose Test aimed at curbing treaty abuse. | Photo Credit: iStockphoto

India and Mauritius have amended their bilateral tax treaty by adding a treaty-level Principal Purpose Test (PPT) to the existing framework, in a move to curb treaty abuse.

The amendment also replaces the treaty preamble to say that the pact intends to eliminate double taxation “without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping arrangements” designed to obtain treaty relief indirectly for residents of third jurisdictions. ⁠

The amended India-Mauritius double taxation avoidance agreement (DTAA) was notified on October 13 and came into force on August 10, 2026.

However, investments made prior to April 1, 2017, would remain outside the scope of the PPT.

Following the amendment, businesses will not be able to claim the DTAA benefits of lower taxes if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any business arrangement or transaction. It does not make every investment routed through Mauritius, or every arrangement that obtains a tax advantage, automatically abusive.

Commercial rationale and substance under scrutiny

SVAS Business Advisors LLP, Managing Partner, Vishwas Panjiar, said for investors, the commercial rationale, decision-making and actual circumstances of the structure may therefore, be relevant alongside formal residence and documentation.

“This does not mean that a tax-efficient structure is necessarily an abusive one. It means that the existence of a treaty entitlement cannot be assessed solely by looking at the paperwork,” he said

Grant Thornton Bharat, Partner-Tax, Richa Sawhney, said from a practical standpoint, the PPT further strengthens the revenue authorities’ ability to challenge treaty claims.

“Unlike the General Anti-Avoidance Rule (GAAR) under the Income-Tax Act, which applies where obtaining a tax benefit is the main purpose of an arrangement, the PPT may be invoked where obtaining treaty benefits is merely one of the principal purposes of a transaction,” Sawhney said.

The Mauritius treaty has been at the centre of tax litigation in India for decades, with many disputes focusing on treaty shopping and the availability of benefits in structures perceived as tax driven.

“The amended preamble moves away from the earlier emphasis on promoting mutual trade and investment and instead expressly states that the treaty should not create opportunities for non-taxation or reduced taxation through tax avoidance, including treaty-shopping arrangements,” Sawhney added.

Experts seek clarity on application of PPT

Seeking a clear guidance from the tax department for applying the PPT, Nangia Global, Partner, Maneesh Bawa said “Capital gains on shares acquired before April 2017 remain grandfathered. The pressure points are dividends, interest and other income arising now, and structures without real commercial rationale in Mauritius. Funds and holding companies should document governance, decision-making and purpose.”

India’s approach to treaty entitlement has evolved over the years from being largely framed around the Tax Residency Certificate (TRC) and prescribed documentation to moving to domestic General Anti-Avoidance Rules (GAAR), judicial anti-avoidance principles and subsequent treaty amendments.

Panjiar said this evolution has progressively strengthened the ability of the tax authorities to examine the substance and purpose of arrangements, rather than treating formal eligibility as conclusive.

Court rulings on PPT issue

In January, the Supreme Court had reversed the 2024 Delhi High Court judgement and upheld Indian tax authorities demand of capital gains tax on Tiger Global’s exit from e-commerce company Flipkart in 2018.

In 2018, US-based Walmart Inc. acquired a controlling stake in Flipkart in a global transaction valued at approximately USD 16 billion. As part of this transaction, three Tiger Global Mauritius entities exited a substantial portion of their investment, leading to significant capital gains, with the aggregate consideration received exceeding Rs 14,500 crore.

At the time of the transaction, Tiger Global sought relief from withholding tax on the basis of its claim of non-taxability.

The Income Tax department, based on examination of the overall structure and surrounding facts, was of the view that the Mauritius entities were interposed entities, with limited commercial substance of their own; and the real control and decision-making in respect of the investments and the exit lay outside Mauritius.

It argued that the arrangement appeared to be structured primarily to obtain treaty benefits, raising concerns of abuse and impermissible avoidance.

The SC ruling reinforced the point that a tax residency certificate and supporting documentation do not, by themselves, protect an arrangement from scrutiny where the facts raise questions of tax avoidance.

DTAA amendment and investors’ treaty benefits

A TRC establishes tax residence under the applicable framework, while Form 10F and other prescribed documents address the relevant compliance requirements. Neither should be confused with a conclusive determination that every treaty benefit claimed by the taxpayer must be granted.

Domestic GAAR, judicial anti-avoidance principles and the terms of the treaty operate in their respective legal contexts.

Panjiar said the PPT now gives the India-Mauritius treaty its own “express test” for examining whether obtaining a treaty benefit was one of the principal purposes of an arrangement or transaction.

Published on October 14, 2026

THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS.Sign into Unlock benefits!

• Access 10 free stories per month
• Get notified by email for early preview to new features, discounts & offers