New Delhi: Mauritius has sought to reassure investors that tougher anti-abuse provisions proposed under its tax treaty with India should not trouble businesses with genuine commercial operations, as the two countries move towards bringing a long-pending amendment into force, the Economic Times reported. The minister for financial services and economic planning, Jyoti Jeetun, said the “principal purpose test”, or PPT, was intended to curb treaty abuse rather than deny legitimate investors the benefits available under the bilateral taxation framework.
The Mauritius cabinet on July 17 agreed to promulgate the Double Taxation Avoidance Agreement (India) (Amendment) Regulations 2026, clearing an important domestic hurdle for implementing the protocol signed with India on March 7, 2024. The protocol seeks to amend the India-Mauritius Double Taxation Avoidance Agreement (DTAA) by incorporating stronger safeguards against tax avoidance, including the PPT.
Under the proposed provision, treaty benefits can be denied when obtaining those benefits is found to be one of the principal purposes of an investment or arrangement, tightening scrutiny of structures created largely to exploit favourable tax treatment. Mauritius had held back ratification after investors and financial-sector stakeholders in both countries raised concerns over how the provision could be interpreted and whether it might unsettle longstanding investment structures.
Jeetun said Mauritius pursued several rounds of discussions with Indian officials over roughly 18 months, including engagements at technical and senior levels, before deciding to proceed. Among the central concerns were whether the PPT would be applied retrospectively, whether legitimate investors might face heightened scrutiny and whether investments made before April 1, 2017, would retain the protection already available to them.
India subsequently clarified that the PPT would operate prospectively once the amended treaty provisions come into force and that investments made before April 1, 2017, would remain protected under the existing grandfathering arrangement. Jeetun said these assurances had provided investors with greater certainty and stressed that the test was not designed as an automatic mechanism for tax authorities to reject treaty benefits.
The Central Board of Direct Taxes had already issued Circular No. 1/2025 on January 21, 2025, providing guidance on the operation of the PPT under India’s tax treaties and clarifying the position on grandfathered investments under the Mauritius treaty. India reinforced that protection through Notification No. 54/2026 of March 31, 2026, which amended the income-tax rules to keep income arising from the transfer of investments made before April 1, 2017, outside the operation of the general anti-avoidance rules.
The assurances assume particular significance after an Indian Supreme Court ruling in January in the Tiger Global case sharpened investor attention on the use of Mauritius-based structures for investments into India. The court concluded that Mauritius entities used in Tiger Global’s sale of its Flipkart stake to Walmart lacked sufficient commercial substance for the claimed treaty protection, prompting broader debate over tax certainty for foreign investors using offshore jurisdictions.
Jeetun, however, said the new protocol was not a response to that judgment, pointing out that India and Mauritius had signed it in March 2024 as part of an earlier commitment to align their treaty with international standards against base erosion and profit shifting. The amendments incorporate minimum anti-abuse standards associated with the OECD-led framework, including a revised preamble and the PPT.
Mauritius has historically been one of the most important conduits for foreign investment into India, helped for decades by favourable provisions in the bilateral tax treaty. Jeetun said the DTAA had supported about $170 billion in investment into India over more than four decades, while also helping Mauritius develop its position as an international financial centre.
The treaty relationship was substantially recast in 2016, when India and Mauritius agreed to give India greater taxation rights over capital gains on shares acquired from April 1, 2017, while preserving earlier investments through grandfathering provisions. The latest protocol represents another stage in that process, this time focusing on whether investment arrangements have genuine economic and commercial substance rather than being designed principally to secure a tax advantage.
The Mauritian government has also linked its decision to high-level political engagement with New Delhi, saying the issue was raised with the prime minister, Narendra Modi, who assured Mauritius that India would not take steps intended to undermine the benefits available to it under the DTAA. The Mauritius Cabinet said subsequent clarifications from Indian authorities had helped address its concerns and paved the way for the decision to move ahead with the protocol.
For Port Louis, the challenge is to preserve Mauritius’s attractiveness as an investment gateway while demonstrating that companies using its financial system have genuine economic substance and meet increasingly stringent international tax standards. Jeetun said investors conducting real business activities in Mauritius should therefore have little reason to fear the PPT, arguing that the revised framework should provide greater predictability while discouraging arrangements established primarily for treaty shopping.