India notifies amended tax treaty with Mauritius, introduces principal purpose test

Why in News?

The Income Tax Department has notified amendments to the India–Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a Principal Purpose Test (PPT) to prevent the misuse of tax treaty provisions for tax avoidance and evasion. The amended agreement came into force on August 10, 2026.

About the Principal Purpose Test (PPT)

• Objective: To prevent taxpayers from obtaining unintended tax advantages by misusing provisions of the tax treaty.
• Denial of benefits: Treaty benefits may be denied if, considering the relevant facts and circumstances, it is reasonable to conclude that obtaining such benefits was one of the principal purposes of a transaction or arrangement.
• Exception: Benefits may still be granted if doing so is consistent with the objectives of the relevant treaty provisions.
• Safeguard: The test seeks to prevent treaty abuse while preserving the agreement’s objective of eliminating double taxation.

About the India–Mauritius DTAA

• Purpose: The Double Taxation Avoidance Agreement aims to prevent the same income from being taxed twice under the tax laws of India and Mauritius.
• Protocol signed: India and Mauritius signed the amending protocol on March 7, 2024, in Port Louis, Mauritius.
• Entry into force: The amended agreement came into force on August 10, 2026, after both countries completed the required legal formalities and notifications.
• Notification mechanism: The agreement entered into force on the date of the later notification exchanged by the two countries confirming completion of their respective domestic procedures.

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