Context

India has signed a protocol amending the Double Taxation Avoidance Agreement (DTAA) with Mauritius to plug treaty abuse for tax evasion or avoidance.

Amended India Mauritius Tax Treaty – Key Highlights

• The amended pact has included the Principal Purpose Test (PPT), which essentially lays out the condition that the tax benefits under the treaty will not be applicable if it is established that obtaining that duty benefit was the principal purpose of any transaction or arrangement.
• Mauritius has been a preferred jurisdiction for investments in India due to the non-taxability of capital gains from the sale of shares in Indian companies until 2016.
• Mauritius remains India’s fourth largest source of FPI investments, after the US, Singapore, and Luxembourg. FPI investment from Mauritius stood at Rs 4.19 lakh crore at the end of March 2024.

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About Double Taxation Avoidance Agreement (DTAA)

A Double Taxation Avoidance Agreement (DTAA) is a pact signed by two nations that encourages capital investment, trade in goods and services, and other economic activities between the two nations by preventing International Double Taxation.

• Depending on the types of businesses/holdings that citizens of one country have in another, the DTAA may either cover all types of income or may focus on a particular type of income.

Benefits of Double Taxation Avoidance Agreement (DTAA):

• Deduction: Taxpayers can claim the taxes paid to foreign governments as a deduction in the country of residence.
• Exemption: Tax relief under this method can be claimed in any one of the two countries.
• Tax credit: Tax relief under this method can be claimed in the country of residence.

Significance: 

The recent amendment India Mauritius Tax Treatyreflects India’s intent to align with global efforts against treaty abuse, particularly under the BEPS framework.