The India-Mauritius Double Taxation Avoidance Agreement (DTAA) has been amended with a Principal Purpose Test (PPT) under Article 27B to deny treaty benefits in cases of treaty shopping and tax avoidance.
India-Mauritius DTAA Amended to Combat Treaty Abuse
The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has been amended to curb misuse through treaty shopping and artificial routing of investments. The key change is the introduction of a Principal Purpose Test (PPT) under Article 27B, which denies tax treaty benefits if one of the principal purposes of an arrangement is to obtain such benefits without substantive economic activity.
The amendment modifies the preamble and adds a new anti-abuse clause aimed specifically at entities set up in Mauritius without genuine business operations, which were historically used to channel investments into India and avoid capital gains tax. This aligns with India’s adherence to the OECD’s Base Erosion and Profit Shifting (BEPS) Project and strengthens the General Anti-Avoidance Rule (GAAR) framework under the Income Tax Act, 1961.
For legal and tax practitioners, the amendment signals a continued regulatory focus on substance over form in cross-border transactions. Entities relying on the India-Mauritius route must now demonstrate real economic presence and legitimate commercial purpose. The PPT clause may lead to increased scrutiny and disputes, requiring proactive documentation and legal structuring to meet tax compliance standards under evolving international norms.
Citations
- India-Mauritius DTAA, as amended effective 2026, Article 27B
