A rewritten treaty preamble and new principal purpose test target treaty shopping and offshore structures designed chiefly to secure tax benefits, while applying prospectively to protect older transactions.
India’s latest changes to its tax pact with Mauritius signal a harder line against arrangements aimed at reducing liability rather than supporting genuine cross-border investment. According to India’s Finance Ministry, the amended double taxation avoidance agreement now carries a rewritten preamble and a new anti-abuse rule that gives tax officials stronger grounds to deny treaty benefits where the main purpose of a deal is to secure tax advantages.
The revised preamble is more explicit than the earlier version, dropping softer language and stating that the treaty is meant to eliminate opportunities for non-taxation or lower taxation through evasion or avoidance, including treaty-shopping structures that let residents of a third country benefit indirectly. That language brings the agreement closer to the OECD’s framework on base erosion and profit shifting, the international tax-avoidance agenda designed to stop multinationals from shifting profits to low-tax jurisdictions. The OECD says those strategies weaken tax bases and shift taxable profits away from where economic activity takes place.
The amendment also reflects long-running Indian frustration with the Mauritius route, which for years was used to channel investment into India through offshore structures. After the treaty was first signed in 1982, Mauritius became a major source of both portfolio and direct investment, but critics have long argued that shell companies there were used for round-tripping and to obscure the true source of funds. Although the treaty was revised in 2016 to give India the right to tax capital gains on certain investments from Mauritius made after April 1, 2017, tax planners continued to probe the gaps. The Supreme Court’s ruling in the Tiger Global matter, involving the sale of Flipkart shares to Walmart, underscored how the route could still be used in attempts to sidestep capital gains tax.
The new Article 27B introduces a principal purpose test, under which treaty benefits can be refused if obtaining them was one of the main aims of an arrangement, unless granting relief is consistent with the treaty’s object and purpose. The Central Board of Direct Taxes said in a January 2025 circular that the test would operate prospectively, not be used to reopen older transactions, and that reassurance remains important if the change is to be seen as a clean-up measure rather than a retrospective tax raid. The protocol signed in March 2024 came into force on August 10, 2026, giving the government a firmer legal basis to scrutinise Mauritius-linked structures at a time when that jurisdiction remained a significant source of investment into India.
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