The Ministry of Finance has notified amendments to the India–Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a Principal Purpose Test that allows treaty benefits to be denied where obtaining such relief was one of the principal purposes of an arrangement or transaction.

The protocol inserts Article 27B, titled “Entitlement to Benefits”, after Article 27A of the treaty.

Under the new provision, a benefit relating to an item of income will be denied if, after considering all relevant facts and circumstances, it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction that directly or indirectly resulted in that benefit.

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The provision also contains an exception. Treaty relief may still be available if it is established that granting the benefit in those circumstances would accord with the object and purpose of the relevant treaty provisions.

The wording makes the purpose of the arrangement central to eligibility for relief. Obtaining a treaty benefit need not be the sole purpose of a transaction for the test to apply; being one of its principal purposes is sufficient, subject to the stated exception.

Revised Preamble Targets Treaty Shopping

The protocol also replaces the treaty’s preamble to expressly state that eliminating double taxation should not create opportunities for non-taxation or reduced taxation through tax evasion or avoidance.

The revised preamble specifically addresses treaty-shopping arrangements aimed at securing treaty relief for the indirect benefit of residents of third jurisdictions. This places an express anti-abuse objective alongside the treaty’s role in preventing double taxation.

Effective From August 10, 2026

Article 3 provides that the amendments take effect from the protocol’s entry into force, irrespective of the date on which taxes are levied or the taxable years to which those taxes relate.

The notification therefore distinguishes between its publication on October 13, 2026, and the protocol’s effective date of August 10, 2026. The application of this wording to a particular transaction or assessment will require consideration of the relevant facts and treaty provisions.

Implications For Taxpayers

The amendment introduces a broader examination of the purposes behind arrangements through which India–Mauritius treaty benefits are claimed. Commercial objectives and the surrounding facts may consequently become significant in determining whether relief is available under Article 27B.

However, the provision does not automatically deny benefits to every transaction involving Mauritius. It requires a conclusion based on relevant facts and circumstances and preserves relief where granting it is consistent with the object and purpose of the applicable treaty provisions.

The Central Government issued the notification under Section 159(1) of the Income-tax Act, 2025. The annexed protocol amends the convention signed on August 24, 1982, as previously amended by the protocol signed on May 10, 2016.

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