In a significant development aimed at strengthening international tax transparency, preventing tax avoidance and curbing treaty shopping, the Ministry of Finance (Department of Revenue) has notified the Protocol amending the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius, vide Notification S.O. 5611(E), dated October 13, 2026, issued under Section 159(1) of the Income-tax Act, 2025.
The amended Protocol, originally signed at Port Louis, Mauritius, on March 7, 2024, entered into force on August 10, 2026, following completion of the necessary procedures by both Contracting States. The Central Government has now formally notified that all provisions of the Protocol shall be given effect to in India in accordance with Article 3 of the Protocol.
Revised Preamble to Prevent Treaty Shopping and Double Non-Taxation
Under Article 1 of the Protocol, the Preamble of the India–Mauritius DTAA has been replaced to reinforce the objective of eliminating double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.
The revised Preamble specifically addresses treaty-shopping arrangements aimed at obtaining treaty relief indirectly for residents of third jurisdictions.
This amendment strengthens the anti-abuse purpose of the Convention by clarifying that treaty benefits are intended to prevent double taxation and encourage legitimate economic activity, rather than facilitate artificial structures designed primarily to obtain preferential tax treatment.
Introduction of Principal Purpose Test (PPT) Under New Article 27B
One of the most significant changes under the amended Protocol is the insertion of Article 27B – Entitlement to Benefits, through Article 2 of the Protocol.
The newly introduced provision incorporates the Principal Purpose Test (PPT), providing that a treaty benefit shall not be granted in respect of an item of income where, considering all relevant facts and circumstances, it is reasonable to conclude that obtaining such benefit was one of the principal purposes of an arrangement or transaction, whether the benefit arose directly or indirectly.
However, the provision also incorporates an important safeguard: treaty benefits may still be allowed where it is established that granting such benefits would be consistent with the object and purpose of the relevant provisions of the Convention.
Accordingly, the amended provision does not automatically deny treaty benefits to all India–Mauritius transactions. Instead, it requires consideration of the underlying arrangement, its purposes and the applicable treaty objectives.
Effective Date: August 10, 2026 – Important Implications for Earlier Taxable Years
As provided under Article 3(1) of the Protocol, the amendments entered into force on August 10, 2026, being the date of the later notification confirming completion of the procedures required under the respective laws of India and Mauritius.
Importantly, Article 3(2) expressly provides that the Protocol shall have effect from its date of entry into force, without regard to the date on which taxes are levied or the taxable years to which the taxes relate.
This provision is particularly relevant in determining the temporal application of the new anti-abuse provisions. Its practical application to transactions, treaty benefits and assessments relating to earlier periods may require careful examination of the specific facts and applicable legal provisions.
The date of notification in the Indian Official Gazette, October 13, 2026, is therefore distinct from the Protocol’s specified date of entry into force, August 10, 2026.
Implications for India–Mauritius Investments and Cross-Border Transactions
The introduction of Article 27B marks an important development for taxpayers and businesses seeking treaty benefits under the India–Mauritius DTAA.
Cross-border investment arrangements, holding company structures, capital gains transactions and other income arrangements involving Mauritius may require closer examination to determine whether the relevant treaty relief is consistent with the amended Convention.
The new PPT provision may particularly affect arrangements where obtaining treaty benefits constitutes one of the principal purposes of the transaction.
Taxpayers relying on treaty benefits may therefore need to substantiate the commercial rationale, economic substance and overall purpose of their arrangements, depending upon the facts and circumstances.
It is important to note that the notified Protocol does not itself expressly prescribe revised withholding tax rates or separately amend the substantive capital gains taxation provisions of the Convention. Its principal amendments concern the revised Preamble, the introduction of the PPT and provisions relating to entry into force and effect.
Background of the India–Mauritius Tax Treaty
The original Double Taxation Avoidance Convention between India and Mauritius was signed on August 24, 1982, with the objective of avoiding double taxation, preventing fiscal evasion concerning taxes on income and capital gains, and encouraging mutual trade and investment.
The Convention was subsequently amended through a Protocol signed on May 10, 2016.
The latest Protocol, signed on March 7, 2024, further strengthens the treaty’s anti-abuse framework by incorporating provisions focused on preventing treaty shopping and ensuring that treaty benefits are available in accordance with their intended objectives.
Strengthening International Tax Compliance and Treaty Integrity
The notification represents a significant step towards strengthening the integrity of the India–Mauritius DTAA and preventing the misuse of international tax treaties.
By introducing the Principal Purpose Test and expressly addressing treaty-shopping arrangements, the amended Convention seeks to ensure that treaty relief operates consistently with its intended objective of eliminating double taxation without facilitating tax avoidance.
The development underlines the importance of reviewing existing and future cross-border arrangements to assess treaty eligibility, commercial justification and compliance with the amended provisions.
The Notification can be accessed at: https://www.incometaxindia.gov.in/documents/d/guest/notification-no-135-2026-pdf
