The Finance Ministry notified an amendment to the India-Mauritius tax treaty on August 10, 2026, introducing a Principal Purpose Test to curb abuse. Richa Sawhney said, "The amended preamble along with the introduction of the Principal Purpose Test will bring the treaty in line with OECD BEPS minimum standards." Investments remain safe.
The Finance Ministry has notified an amendment to the India-Mauritius tax treaty, introducing a treaty-level Principal Purpose Test (PPT) to curb treaty abuse.
The amendment came into force on August 10, 2026, while investments made before April 1, 2017, remain outside the scope of the PPT.
The amendment also revises the treaty preamble to state that the agreement seeks to eliminate double taxation "without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty-shopping arrangements" designed to secure treaty benefits indirectly for residents of third jurisdictions.
Treaty claims under scrutiny
Richa Sawhney, Partner - Tax at Grant Thornton Bharat, said the amendment was significant because the India-Mauritius treaty was not a Covered Tax Agreement under the Multilateral Instrument (MLI) and had, therefore, not automatically incorporated its anti-abuse provisions.
"The amended preamble along with the introduction of the Principal Purpose Test (PPT) will bring the treaty in line with OECD BEPS minimum standards," she said, adding that the PPT would strengthen the Revenue's ability to challenge treaty claims.
Nishant Shah, Partner at Economic Laws Practice, said the amendment introduces a new Article 27B incorporating the PPT. As India's treaty with Mauritius was not covered under the MLI, the minimum standard on treaty abuse under the Base Erosion and Profit Shifting (BEPS) framework had remained unaddressed.
"With the introduction of Article 27B through bi-lateral amendment, the commercial purpose of investment structures routed through Mauritius is put in sharper focus," he said.
Under the PPT, treaty benefits may be denied if it is reasonable to conclude that obtaining those benefits was one of the principal purposes of an arrangement or transaction. However, investments routed through Mauritius or arrangements that provide tax advantages will not automatically be treated as abusive.
Substance and commercial rationale matter
Maneesh Bawa, Partner at Nangia Global, said genuine investors should focus on substance rather than disruption. Capital gains on shares acquired before April 2017 remain grandfathered, as clarified by the Central Board of Direct Taxes (CBDT) in January 2025.
The key areas of scrutiny are dividends, interest and other income arising now, as well as structures lacking a genuine commercial rationale in Mauritius, he said. Funds and holding companies should document their governance, decision-making and commercial purpose. Clear CBDT guidance on applying the PPT would also help, he added.
Vishwas Panjiar, Managing Partner at SVAS Business Advisors LLP, said the commercial rationale, decision-making and actual circumstances of an investment structure could be relevant alongside formal residence and documentation.
"This does not mean that a tax-efficient structure is necessarily an abusive one. It means that the existence of a treaty entitlement cannot be assessed solely by looking at the paperwork," he said.
The India-Mauritius treaty has been at the centre of tax litigation for decades, with disputes often focusing on treaty-shopping and the availability of benefits under structures perceived as tax-driven.
The revised preamble shifts the emphasis towards preventing non-taxation and reduced taxation through avoidance, including treaty shopping, Sawhney said.