The Finance Ministry has notified an amendment to the India-Mauritius Double Taxation Avoidance Agreement (DTAA), introducing a Principal Purpose Test (PPT) effective August 10.
The provision allows tax authorities to deny treaty benefits if they establish that obtaining a tax advantage was one of the principal purposes of a transaction or arrangement.
The amendment could bring Mauritius-based foreign portfolio investors, private equity and venture capital funds, holding companies and special-purpose vehicles (SPVs) under closer scrutiny when claiming tax relief.
Under the new provision, tax authorities can examine the purpose of transactions to determine whether treaty benefits should be granted.