The amended India Mauritius tax treaty will place greater emphasis on the commercial rationale and substance of investment structures, with tax experts saying the introduction of an express Principal Purpose Test marks a further shift away from relying solely on tax residence and documentation to establish treaty entitlement.
The Central Board of Direct Taxes notified the protocol amending the India Mauritius Double Taxation Avoidance Agreement on October 13, 2026. The protocol, signed by India and Mauritius on March 7, 2024, entered into force on August 10, 2026.
The amendment revises the treaty preamble and introduces Article 27B, which sets out the Principal Purpose Test. Under the provision, a treaty benefit may be denied if, having regard to 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 resulted directly or indirectly in that benefit.
However, the benefit should not be denied if granting it in those circumstances would be consistent with the object and purpose of the relevant treaty provisions.
The change is significant for investors, funds and holding companies using Mauritius based structures because tax residence and supporting documentation may not, by themselves, establish entitlement to treaty benefits where the underlying arrangement comes under scrutiny.
Commercial rationale becomes critical
Riaz Thingna, Partner, Tax, Grant Thornton Bharat, said the amendment makes the purpose and commercial substance of arrangements more important when assessing eligibility for treaty benefits.
“The preamble and the entitlement to benefits provision of the India–Mauritius DTAA have now been amended. The revised treaty expressly clarifies that its objective is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. The notification also brings into force a principal purpose test (PPT), under which treaty benefits may be denied where obtaining such benefits was one of the principal purposes of an arrangement or transaction. These amendments have to be read in light of the clarifications earlier provided by CBDT, particularly on grandfathering,” Thingna said.“Against this backdrop, it will be critical to demonstrate commercial rationale and substance for investments and transactions routed through Mauritius. Given the Supreme Court’s ruling in the Tiger Global matter, many taxpayers had already commenced a review of their holding structures. However, the recent treaty amendment significantly heightens the importance of such reviews and the continued availability of treaty benefits,” he added.
The amendment comes amid greater scrutiny of treaty claims and the purpose behind cross border investment structures. The Supreme Court’s January 2026 ruling in the Tiger Global matter has also heightened attention on the circumstances in which tax authorities can examine the substance of an arrangement despite the existence of a Tax Residency Certificate and supporting documents.
From documentation to substance and purpose
Vishwas Panjiar, Managing Partner, SVAS Business Advisors LLP, said India’s approach to treaty entitlement has evolved over the years, with domestic anti avoidance rules, judicial principles and treaty amendments strengthening the ability of tax authorities to examine the substance and purpose of arrangements.
“The question was once largely framed around tax residence, the Tax Residency Certificate (TRC) and prescribed documentation, including Form 10F. The Supreme Court’s decision in Azadi Bachao Andolan gave considerable weight to the TRC framework in the context of the India-Mauritius treaty. That, however, was never the end of the story. Domestic General Anti-Avoidance Rules (GAAR), judicial anti-avoidance principles and subsequent treaty amendments have progressively strengthened the ability of the tax authorities to examine the substance and purpose of arrangements, rather than treating formal eligibility as conclusive,” Panjiar said.
He said the new protocol introduces an express treaty level test within this broader framework.
“The new Protocol adds an express treaty-level Principal Purpose Test (PPT) to this existing framework. The test is not a new concept developed specifically for India or Mauritius. It forms part of the minimum standard under the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, agreed under Action 6 in 2015 to address treaty abuse, particularly treaty shopping,” he said.
The revised preamble expressly states that the treaty aims to eliminate double taxation without creating opportunities for non taxation or reduced taxation through tax evasion or avoidance. It also addresses treaty shopping arrangements designed to secure treaty relief indirectly for residents of third jurisdictions.
PPT does not automatically deny treaty benefits
Experts said the amendment should not be interpreted as an automatic denial of treaty benefits for every investment routed through Mauritius.
Panjiar said the provision requires an assessment of the purpose and circumstances of an arrangement, rather than a blanket presumption that a tax efficient structure is abusive.
“The wording therefore requires an examination of purpose and context; it does not make every investment routed through Mauritius, or every arrangement that obtains a tax advantage, automatically abusive,” he said.
Under Article 27B, the relevant question is whether obtaining the treaty benefit was one of the principal purposes of the arrangement or transaction. Even where that condition is met, the treaty provides an exception where granting the benefit would be consistent with the object and purpose of the relevant provisions.
The distinction matters for investors using Mauritius for legitimate commercial or investment reasons. The amendment strengthens the basis for examining treaty claims but does not, by itself, make Mauritius based investment structures impermissible.
Investors urged to review existing structures
Harsh Bhuta, Managing Partner, Bhuta Shah and Co LLP, said taxpayers should revisit treaty claims and withholding positions taken after the protocol entered into force.
“India and Mauritius signed a Protocol on 7 March 2024 amending their tax treaty. CBDT notified the same vide Notification No. 135/2026 dated 13 October 2026, but the Protocol entered into force on 10 August 2026. The rules changed two months before taxpayers were told, so any treaty claim or withholding position taken since 10 August 2026 needs a fresh look,” Bhuta said.
He said the change reinforces the need for commercial substance and contemporaneous documentation.
“This completes the move from form-based to substance-based that began with the 2016 Protocol and GAAR. Mauritius structures will need a demonstrable commercial rationale, real substance and contemporaneous documentation. Legacy holding structures set up primarily for treaty access should be reviewed now, not at assessment,” he said.
For investors and companies, this means reviewing why a Mauritius entity was established, where investment decisions are made, how governance operates and whether the structure has a demonstrable commercial purpose beyond obtaining treaty benefits.
Grandfathering remains an important issue
The amendment also needs to be read alongside CBDT’s earlier guidance on the application of the PPT and the treatment of grandfathered investments.
Maneesh Bawa, Partner, Nangia Global, said the protocol should be viewed as a substance focused measure rather than a blanket disruption to genuine investments.
“The Protocol has been in force since 10 August 2026; the 13 October 2026 Notification gives it a formal effect in India. It adds a revised preamble and a Principal Purpose Test (PPT), aligning the India-Mauritius tax treaty with the BEPS minimum standard,” Bawa said.
“For genuine investors this is about substance, not disruption: capital gains on shares acquired before April 2017 remain grandfathered, as CBDT clarified in January 2025. The pressure points are dividends, interest and other income arising now, and structures without real commercial rationale in Mauritius. Funds and holding companies should document governance, decision-making and purpose. Clear CBDT guidance on applying the PPT would help,” he added.
CBDT Circular No. 1/2025 addressed the application of the PPT and grandfathering under the relevant treaty framework. The treatment of shares acquired before April 1, 2017 remains an important consideration for investors, although the precise availability of treaty protection depends on the applicable provisions and circumstances.
Bhuta flagged a further interpretational question over the timing of the protocol’s application.
“Article 3(2) gives the Protocol effect without regard to the taxable year, which, read literally, could reach earlier years still open. That sits uneasily with CBDT Circular No. 1/2025, which says PPT applies prospectively. The safer position is that income arising from 10 August 2026 will be tested under Article 27B,” he said.
On grandfathering, he said the protocol itself does not expressly address the issue.
“On grandfathering, the Protocol is silent, but Circular 1/2025 keeps shares acquired before 1 April 2017 outside the PPT. A circular binds the tax department, not the courts, so a Protocol-specific clarification would still reduce litigation,” Bhuta said.
A further clarification from CBDT on the interaction between the protocol, the earlier circular and grandfathered investments could help reduce uncertainty and potential litigation.
Why the amendment matters
The protocol adds an express treaty level test to India’s existing anti avoidance framework, which includes GAAR and judicial principles governing tax avoidance. It also reflects the international effort to address treaty abuse under the OECD/G20 BEPS framework.
Panjiar said the protocol was implemented through bilateral negotiations because the India Mauritius treaty could not be modified through the Multilateral Instrument route.
“India listed Mauritius under the MLI, but Mauritius did not list India. As a result, the India–Mauritius treaty could not be modified through the MLI, and the two countries had to pursue the change through bilateral negotiations,” he said.
For taxpayers, the distinction between formal eligibility and substantive entitlement is central to the revised framework. A TRC establishes tax residence under the applicable framework, while Form 10F and other prescribed documents address compliance requirements. Neither necessarily settles whether a particular treaty benefit can be claimed.
“The PPT now gives the India-Mauritius treaty its own express test for examining whether obtaining a treaty benefit was one of the principal purposes of an arrangement or transaction. For investors, the commercial rationale, decision-making and actual circumstances of the structure may therefore be relevant alongside formal residence and documentation,” Panjiar said.
The immediate priority for investors, funds and holding companies using Mauritius structures is to ensure that their commercial rationale, governance arrangements and decision making are adequately documented. The new test does not automatically disqualify genuine investments, but it gives greater importance to the purpose and substance of the arrangements through which treaty benefits are claimed.
