Introduction
The India Mauritius Tax Treaty has undergone an important update aimed at preventing the misuse of tax treaty benefits. On 13 October 2026, the Government of India notified a protocol amending the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius. The protocol was signed on 7 March 2024 and entered into force on 10 August 2026.
The amendment introduces a Principal Purpose Test (PPT) and revises the treaty’s preamble to strengthen safeguards against tax avoidance, reduced taxation through abusive arrangements and treaty shopping. These changes are relevant to businesses, international investors, holding companies and other taxpayers that rely on treaty benefits when structuring cross-border transactions.
The updated provisions make it important for taxpayers to examine the commercial purpose of their arrangements and assess whether their claims for treaty relief are consistent with the objectives of the agreement. Understanding the changes can help businesses identify potential risks, review documentation and prepare for tax compliance assessments.
What Is the India–Mauritius Tax Treaty?
The India–Mauritius tax treaty is an agreement designed to address double taxation and establish rules for the taxation of certain income involving residents of both countries. It provides a framework for determining how treaty benefits may apply to qualifying cross-border transactions.
The treaty has historically been relevant to international investments, corporate structures and payments such as dividends, interest and other income covered by its provisions.
However, treaty benefits are subject to the applicable conditions. Taxpayers must assess their eligibility in light of the treaty’s provisions, domestic tax laws and relevant anti-abuse rules.
The 2026 notification gives effect to a protocol that amends the treaty originally signed in 1982 and previously amended in 2016.
1. What Changed Under the 2026 Amendment?
The protocol introduces two key changes to the India–Mauritius tax treaty.
Revised treaty preamble
The revised preamble emphasises the objective of eliminating double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. It specifically addresses treaty-shopping arrangements designed to obtain treaty relief indirectly for residents of third jurisdictions.
This change reinforces the treaty’s purpose of facilitating legitimate cross-border trade and investment while discouraging arrangements designed to obtain unintended tax advantages.
Introduction of the Principal Purpose Test
The protocol introduces Article 27B, titled “Entitlement to Benefits”. This provision establishes the Principal Purpose Test, which allows treaty benefits to be denied in specified circumstances where obtaining the benefit was one of the principal purposes of an arrangement or transaction.
The test also contains an exception where granting the benefit would be consistent with the object and purpose of the relevant treaty provisions.
These changes mean that formal eligibility for treaty relief should not be treated as the only consideration. The purpose and circumstances of the relevant arrangement may also matter.
2. Understanding the Principal Purpose Test
The Principal Purpose Test is an anti-abuse mechanism used to assess whether an arrangement or transaction was structured, at least in part, to obtain a tax treaty benefit in circumstances inconsistent with the treaty’s purpose.
Under Article 27B, the assessment considers the relevant facts and circumstances surrounding the arrangement or transaction.
The main considerations include:
- Purpose of the arrangement: Whether obtaining the treaty benefit was one of its principal purposes.
- Connection to the benefit: Whether the arrangement resulted directly or indirectly in the treaty benefit being claimed.
- Treaty objectives: Whether granting the benefit would be consistent with the object and purpose of the relevant treaty provisions.
The test does not automatically mean that every transaction involving Mauritius will be denied treaty benefits. Each case requires an assessment of its specific facts, commercial context and applicable legal provisions.
Businesses should therefore avoid assuming either that a Mauritius-based structure automatically qualifies for relief or that the amendment automatically disqualifies existing investments.
3. How the Amendment May Affect Businesses and Investors
The updated treaty provisions may be relevant to organisations and investors that use Mauritius-based entities for cross-border investments or business arrangements.
Indian businesses with international structures
Indian businesses operating through overseas holding companies or other cross-border arrangements should review whether their structures have clear commercial objectives and appropriate supporting documentation.
Where treaty relief is claimed, organisations should be able to explain the nature and purpose of the transaction and how the relevant treaty provisions apply.
International investors
Investors considering investments involving India and Mauritius should evaluate the tax implications of their investment structures before completing transactions.
The analysis may include the relevant income category, tax residence, ownership arrangements, transaction purpose and conditions for treaty relief.
Holding companies and investment vehicles
Companies using Mauritius-based holding entities or investment vehicles should review the role of those entities in their overall business structure.
Relevant questions include whether the structure serves identifiable commercial or investment objectives, whether the arrangements are properly documented and whether the treaty benefit claimed is consistent with the treaty’s purpose.
These are practical review considerations, not automatic statutory requirements for every company. The applicable legal analysis depends on the specific circumstances.
4. What Businesses Should Review for Tax Compliance
The India Mauritius Tax Treaty amendment provides a reason for affected taxpayers to review their existing tax positions and planned transactions.
Businesses and investors should consider the following areas.
Commercial rationale
Document the business or investment purpose of the relevant structure and transaction. Where multiple objectives exist, ensure that the supporting records accurately reflect the actual circumstances.
Tax residence and eligibility
Review the applicable residence requirements and other conditions relevant to the treaty benefit being claimed. Obtain and maintain the necessary supporting documents.
Transaction records
Maintain agreements, investment documents, board approvals, transaction records and relevant tax analyses that explain the arrangement.
Treaty-benefit analysis
Assess whether the claimed benefit is available under the relevant treaty provision and whether Article 27B may affect entitlement to that benefit.
Historical tax positions
Review relevant past and current arrangements with professional advice, particularly where the amendment’s effective date may affect the tax treatment being considered.
The protocol states that its provisions take effect from the date it entered into force, irrespective of when taxes are levied or the taxable years to which they relate. The implications for a particular transaction or historical tax position should be assessed individually.
5. Practical Compliance Checklist for Investors and Businesses
A structured review can help organisations identify potential issues before making or continuing cross-border investments.
Use the following checklist as a starting point:
- Identify transactions and investment structures that rely on the India–Mauritius tax treaty.
- Determine which treaty provisions and categories of income are relevant.
- Review the commercial purpose and factual background of each arrangement.
- Examine whether the Principal Purpose Test could affect the treaty benefit claimed.
- Verify tax residence and other applicable eligibility conditions.
- Organise contracts, investment records, board documents and relevant tax analyses.
- Review existing tax positions with qualified tax advisers.
- Assess whether any changes to future transactions or internal tax procedures are appropriate.
- Monitor official notifications and relevant legal interpretations.
- Document the reasoning supporting the organisation’s tax position.
This checklist is intended to support a compliance review. It does not replace a transaction-specific legal or tax assessment.
6. Common Mistakes to Avoid
Businesses can expose themselves to unnecessary tax uncertainty when treaty benefits are assessed without considering the purpose and circumstances of the underlying arrangements.
Common mistakes include:
- Assuming that incorporation or tax residence in Mauritius automatically guarantees treaty relief.
- Treating the PPT as an automatic prohibition on all Mauritius-based investments.
- Relying on incomplete documentation to explain the commercial purpose of a transaction.
- Applying the amendment without checking the relevant effective date and treaty provisions.
- Assuming that the same analysis applies to every income category or investment structure.
- Making changes to an existing structure without assessing the wider legal and tax implications.
A careful, evidence-based review can help taxpayers understand the applicable rules and identify matters requiring professional advice.
7. How Derecho Consulting Can Help
Derecho Consulting supports businesses in understanding legal, tax and regulatory developments that may affect their operations and commercial arrangements.
Depending on the engagement, support may include reviewing relevant legal and compliance requirements, identifying documentation gaps, assessing cross-border compliance considerations and helping organisations prepare structured questions for their tax advisers.
For transactions involving the India–Mauritius tax treaty, businesses should seek advice from qualified tax professionals who can evaluate the specific arrangement, applicable treaty provisions and relevant domestic laws.
A coordinated approach can help organisations understand their compliance position and make informed decisions about cross-border transactions.
Conclusion
The India–Mauritius tax treaty amendment notified in October 2026 introduces important anti-abuse provisions, including the Principal Purpose Test under Article 27B. The protocol was signed in 2024 and entered into force on 10 August 2026, strengthening the treaty framework against arrangements intended to obtain benefits inconsistent with its objectives.
For businesses and investors, the key consideration is not simply whether an arrangement involves Mauritius, but whether the relevant treaty benefit is available under the applicable provisions and supported by the facts and circumstances.
Reviewing transaction purposes, tax documentation, eligibility conditions and existing tax positions can help organisations identify potential risks and prepare for compliance assessments. Businesses should obtain transaction-specific professional advice before changing investment structures or relying on treaty relief.
By keeping their documentation organised and reviewing relevant legal developments, businesses can better manage cross-border tax compliance and make informed decisions about their international arrangements.