India-Mauritius DTAA Amended to Block Treaty Shopping

India and Mauritius have amended their Double Taxation Avoidance Agreement (DTAA) to strengthen anti-abuse provisions and curb misuse of the treaty for tax avoidance. The key amendment introduces a Principal Purpose Test (PPT) under a newly inserted Article 27B, which denies treaty benefits where one of the principal purposes of an arrangement is to obtain such benefits without substantive economic activity.

The revised preamble also reflects the shared intention of both nations to foster transparent tax cooperation and prevent revenue loss through artificial structures. The PPT aligns India’s treaty network with OECD BEPS recommendations, particularly Action 6 on preventing treaty abuse. This amendment targets shell entities incorporated in Mauritius solely to access favorable capital gains and dividend tax treatment under the treaty.

The amendment ensures that only bona fide investors with genuine economic presence will be eligible for treaty benefits.

For practitioners, this means heightened due diligence in structuring cross-border investments involving Mauritius. Retroactive application will be limited to cases involving tax avoidance, in line with domestic jurisprudence on treaty interpretation. The change marks a significant step in India’s broader anti-abuse framework, following similar changes in treaties with Singapore and Cyprus.