Latest amendment to India – Mauritius DTAA

Posted On - 20 June, 2024 • By - Sambhram Shetty

India and Mauritius have enforced a Double Tax Avoidance Agreement (“DTAA”) which has been facilitating avoidance of liability of paying dual taxes, prevention of fiscal evasion with respect to taxes on income and capital gains and for encouragement of trade and investment for residents of both the countries.

Basis, the information provided by Reserve Bank of India (RBI) in respect of Foreign Direct Investment (“FDI”) country wise inflows, it is observed that Mauritius with 8 billion USD is second only to Singapore in terms of FDI inflows to India.[1] On March 07, 2024, Government of India and Government of Mauritius has signed a protocol to amend the provisions related to taxation of capital gain income in order to prevent tax evasion or tax avoidance. The said protocol was necessitated in order to amend the preamble of DTAA to ensure that the preamble weighs in on the intention among the two countries to eliminate double taxation without creating any opportunity for non-taxation or reduction in tax due to tax evasion or tax avoidance. In this regard the proposed amendment will have far reaching implications considering the magnitude of inflow.

The amendment also introduces the concept of Principal Purpose Test (“PPT”), which is an anti-abuse provision which is intended to be introduced in order to curtail any tax benefit under the DTAA if may be concluded that one of the principal purposes of the transaction or arrangement is to take advantage of the DTAA. PPT is the need of the hour in this time and age where businesses and people alike entering into transactions or arrangements find various loopholes or exploit treaties in order to evade tax. Further, PPT ensures that only bona fide commercial transactions can claim tax benefit under DTAA.

Both India and Mauritius are members of the Organization of Economic Cooperation and Development (OECD)/ G20 Inclusive Framework on Base Erosion and Profit Sharing (BEPS), which includes 15 BEPS Actions to tackle tax avoidance, improve the coherence of international tax rules, ensure a transparent tax environment and address the tax challenges arising from the digitalization of the economy by equipping the governments with domestic and international rules.[2] BEPS Action 6 ‘Prevention of tax treaty abuse’ addresses concerns related to abuse of tax treaties and has given importance to PPT to address treaty shopping. The said protocol has been aligned to meet the global requirements by incorporating PPT rule.

However, the protocol related to these amendments has not yet been ratified by the Income Tax department and has not been notified under Section 90 of the Income Tax Act, 1961. These amendments are anticipated to make way for better tax regime, transparency, fairness and prevent tax treaty abuse.

[1] Reserve Bank of India – Annual Report (