India has notified the Protocol amending its tax treaty with Mauritius. Treaty benefits can now be denied where obtaining them was one of the principal purposes of an arrangement.
What the Protocol does
- New preamble: the treaty is now expressly meant to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty shopping.
- Principal Purpose Test (new Article 27B): a benefit is denied if obtaining it was one of the principal purposes of an arrangement or transaction, unless granting it is in line with the object and purpose of the relevant provision.
Key dates
- Protocol signed at Port Louis on 7 March 2024.
- Entered into force on 10 August 2026, and applies from that date regardless of the tax year the income relates to.
Who is affected
Funds, holding companies and investors routing investments into India through Mauritius, especially for claims on capital gains, dividends, interest and royalties.
What to do now
- Review Mauritius structures for commercial substance: board control, people, decision-making and expenses in Mauritius.
- Document the business reasons for the structure now, not when a claim is challenged.
- Do not assume protection for pre-2017 investments; the Protocol has no express grandfathering clause.
Reference: Notification No. 135/2026 [S.O. 5611(E)] dated 13 October 2026, issued under section 159(1) of the Income-tax Act, 2025.