The Central Board of Direct Taxes (CBDT) has notified a protocol amending the India-Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a provision that allows treaty benefits to be denied if obtaining them was one of the principal purposes of an arrangement or transaction.
The notification, issued on Wednesday, states that the protocol will come into force from August 10, 2026.
Under the new provision, treaty benefits will not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction that resulted, directly or indirectly, in that benefit.
However, the provision allows an exception if it is established that granting the benefit in the circumstances would be consistent with the object and purpose of the relevant provisions of the tax treaty.
The amendment introduces a Principal Purpose Test (PPT), allowing tax authorities to examine whether an arrangement was structured, at least in part, to secure treaty benefits and whether granting those benefits would be consistent with the treaty's intent.