Amended India-Mauritius tax treaty protocol yet to be ratified, notified: IT dept

Tax treaty: The amendment to the India-Mauritius double taxation avoidance agreement has been met with both anticipation and concern. The Income Tax Department on Friday said the amended India-Mauritius protocol on double taxation avoidance agreement is yet to be ratified and notified by the department.

The revised protocol, signed on March 7, 2024, introduces a principal purpose test (PPT) aimed at thwarting tax avoidance practices by ensuring that treaty benefits are granted only for transactions with genuine commercial intent.

However, despite the amendment, uncertainties loom as the protocol awaits ratification and notification by the Income Tax Department under section 90 of the Income-tax Act, 1961. Until official ratification occurs, queries surrounding the implications of the amendment remain premature, as highlighted by a recent statement from the tax authorities.

The introduction of the PPT test marks a significant shift, potentially subjecting investments routed through Mauritius to heightened scrutiny by Indian tax authorities. This move could prompt a reevaluation of existing investment structures to ensure compliance once the protocol comes into force.

The impact of these regulatory changes is already reverberating in the financial markets, with India's benchmark indices, the Sensex and Nifty, witnessing a 1% dip attributed to widespread profit-taking by investors. This downturn underscores the sensitivity of market sentiment to regulatory developments and underscores the need for clarity and guidance as the amended protocol progresses towards implementation.

With PTI Inputs