India-Mauritius pact brings in Principal Purpose Test
BusinessLine 1 hr ago·14 Oct 2026, 1:54 pm
India and Mauritius have updated their tax treaty to include the Principal Purpose Test (PPT). This new rule requires investors to demonstrate that their primary reason for investing in India is genuine business, rather than just to benefit from the tax treaty. This change is designed to prevent treaty shopping, a practice where investments are routed through Mauritius to reduce tax liabilities.
For investors, this update signals a tightening of tax compliance standards. While the rule applies to new investments, it provides clarity on how future capital flows will be treated. It underscores the importance of understanding the legal framework governing cross-border investments.
Investors should monitor how this change impacts the flow of foreign capital into India. The rule is expected to level the playing field for other tax jurisdictions. It is also a reminder to review the structure of existing investments to ensure they align with the new regulatory requirements.
Excerpt from BusinessLine
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…Read the original at BusinessLine
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