The central government has notified amendments to the Double Taxation Avoidance Convention (DTAC) between India and Mauritius, introducing an express anti-abuse provision to strengthen safeguards against treaty shopping and tax avoidance. India’s Ministry of Finance issued Notification S.O. 5611(E) on 13 October 2026, confirming that the amending protocol entered into force on 10 August 2026.
The 2026 Protocol revises the Convention’s preamble and introduces Article 27B, titled “Entitlement to Benefits”.
These changes distinguish formal eligibility for treaty relief from entitlement to that relief under the circumstances of a particular transaction. Businesses and investors using Mauritius-based investment structures should therefore reassess their treaty positions in light of the revised provisions.
Review Treaty Eligibility
Contact our tax experts to review investment models and applicable anti-abuse rules under the India-Mauritius Tax Treaty.What are the key changes to the India-Mauritius tax treaty?
The 2026 Protocol introduces two substantive changes to the Convention.
- Revised preamble: The revised preamble retains the objective of eliminating double taxation while explicitly addressing non-taxation, reduced taxation through tax evasion or avoidance, and treaty-shopping arrangements. It specifically refers to arrangements designed to secure treaty relief for the indirect benefit of residents of third jurisdictions.
Treaty shopping generally involves routing investments or transactions through a jurisdiction to obtain tax treaty benefits that might otherwise be unavailable. The revised preamble expressly establishes the prevention of such arrangements as an objective of the Convention. However, the preamble alone does not establish whether a particular transaction constitutes treaty abuse.
- Introduction of Article 27B: The Protocol introduces a new provision governing entitlement to treaty benefits. Article 27B establishes a Principal Purpose Test (PPT), under which tax authorities may deny a treaty benefit if obtaining that benefit was one of the principal purposes of an arrangement or transaction, unless the taxpayer establishes that granting the benefit would align with the object and purpose of the relevant treaty provisions.
How does the principal purpose test work?
Article 27B applies notwithstanding the Convention’s other provisions. It requires an assessment of the relevant facts and circumstances surrounding an arrangement or transaction that directly or indirectly generates a treaty benefit.
The test involves three principal considerations:
- Purpose of the arrangement: Determine whether obtaining the treaty benefit was one of the arrangement’s principal purposes.
- Basis for denying relief: Assess whether the circumstances satisfy the conditions for denying the benefit under the PPT.
- Exception to denial: Establish whether granting the benefit would align with the object and purpose of the relevant Convention provisions.
The provision does not require obtaining a tax benefit to be the arrangement’s sole purpose. An arrangement may have several principal purposes, including commercial and tax-related objectives.
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India-Mauritius tax treaty amendment: Effective date and implementation
On 13 October 2026, the central government issued the notification under Section 159(1) of the Income Tax Act, 2025, to give effect to the Protocol in India.
Businesses should distinguish the Protocol’s entry-into-force date from the date of its publication in the Gazette. Article 3 provides that the Protocol takes effect from its entry-into-force date, irrespective of when the relevant taxes are levied or the taxable years to which they relate.
However, this provision does not automatically resolve the treatment of every historical transaction or tax position.
What does the India-Mauritius tax treaty amendment not change?
The Protocol introduces an anti-abuse test rather than replacing the Convention in its entirety. It does not expressly introduce new withholding tax or capital gains tax rates, redefine tax residence, establish additional requirements for tax residency certificates, or prescribe minimum employee numbers, expenditure thresholds or physical-presence requirements under Article 27B.
The 2026 amendment also does not automatically make every Mauritius-based investment taxable in India or expressly eliminate existing capital gains grandfathering provisions. Any availability of treaty relief will depend on the relevant Convention provisions, the circumstances of the arrangement and the application of the PPT.
How does the India-Mauritius tax treaty amendment affect businesses and investors?
The 2026 amendment has different implications for Mauritius-based businesses establishing commercial operations in India and investors using Mauritius entities to access Indian investments. Its direct impact concerns entitlement to tax treaty benefits rather than the general ability to conduct business or invest in India.
Businesses establishing commercial operations in India
Mauritius-based companies planning to establish subsidiaries, joint ventures, branches or other business operations in India do not automatically lose access to treaty benefits under the amendment. However, they should distinguish the tax treatment of their Indian operations from the tax treatment of income for which they claim relief under the India–Mauritius Convention.
Companies should assess the relevant treaty provisions when evaluating cross-border payments, including dividends, interest and royalties, and determine whether their arrangements satisfy Article 27B. They must also comply with applicable Indian corporate, tax, foreign investment and sector-specific requirements.
Plan India Entry
Evaluate the tax implications of establishing or expanding your business in India through Mauritius.Investors using Mauritius-based entities to invest in India
Investors using Mauritius as an investment jurisdiction face a more direct need to assess the purpose and operation of their investment structures. Tax authorities may examine whether a Mauritius entity serves a genuine commercial or investment function, whether the entity makes the decisions attributed to it, and whether the arrangement primarily seeks to obtain treaty relief.
Implications for existing investments and future returns
Businesses and investors should review the amendment alongside the treaty’s existing capital gains provisions and applicable domestic anti-avoidance rules. The 2026 Protocol does not expressly repeal the grandfathering provisions introduced under the 2016 Protocol for qualifying investments made before April 1, 2017. However, investors should not assume that grandfathering resolves every potential anti-avoidance issue.
For new investments, businesses should incorporate the PPT assessment into their initial structuring decisions rather than evaluate treaty eligibility only when they receive income or exit an investment. For existing structures, they should assess whether their current arrangements and supporting documentation adequately demonstrate the commercial purpose and circumstances relevant to the benefits claimed.
Summary
Overall, the amendment does not make Mauritius an unavailable route for doing business or investing in India. It requires businesses to assess treaty entitlement more carefully, particularly where their investment structures rely on tax advantages under the Convention. The actual outcome will depend on the relevant treaty provision, the facts and circumstances of the arrangement, and applicable Indian tax law.
