In short: India and Mauritius have amended their 1982 tax treaty to close routes to non-taxation or reduced taxation through avoidance, including treaty shopping. The Protocol, signed on 7 March 2024 and notified by India on 13 October 2026, adds Article 27B, a principal purpose test. It entered into force on 10 August 2026 and applies from that date.
Why did India and Mauritius amend the treaty?
The replacement preamble states the aim: to eliminate double taxation “without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third jurisdictions)”.
The Press Information Bureau reported on 13 March 2024 that the Protocol makes the treaty compliant with Base Erosion and Profit Shifting (BEPS) Minimum Standards. The Mauritius Cabinet (17 July 2026) described Article 27B as preventing abusive use of the treaty, and noted that ratification had been deferred following concerns expressed by stakeholders and investors, and that the Indian authorities have since clarified their stand.
India does not appear in the list of agreements Mauritius asked the Multilateral Instrument (MLI) to cover when it deposited on 18 October 2019. In our reading, that is consistent with the test arriving through a bilateral Protocol.
What did the treaty provide before?
The Convention was signed at Port Louis on 24 August 1982. A first Protocol (signed 10 May 2016, in operation from 19 July 2016) gave India taxation rights over gains on shares acquired on or after 1 April 2017, with earlier shares protected. For gains from 1 April 2017 to 31 March 2019 the rate was limited to 50% of the domestic rate, subject to the Limitation of Benefits Article, with its main purpose and bona fide business tests. Interest paid to Mauritian resident banks on loans made after 31 March 2017 became subject to Indian withholding tax at 7.5%.
The Government of India said in 2016 that the Protocol would tackle “the long pending issues of treaty abuse and round tripping of funds”. The 2024 Protocol does not amend those provisions.
What does Article 27B add?
Article 27B opens with “Notwithstanding the other provisions of this Convention”, so it reaches any benefit under the treaty. It reads in four steps.
- Step 1
There is an arrangement or transaction that resulted, directly or indirectly, in a benefit under the Convention for an item of income.
- Step 2
Having regard to all relevant facts and circumstances, it is reasonable to conclude that obtaining that benefit was one of the principal purposes of that arrangement or transaction.
- Step 3
The benefit is not granted for that item of income.
- Exit
Unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the Convention.
| Before the Protocol (2016 text) | After the Protocol | |
|---|---|---|
| Where the anti-abuse test applies | Tied to the 50% transition rate on share gains, through the Limitation of Benefits Article. | Any “benefit under this Convention” for an item of income. |
| The test | Main purpose test and bona fide business test. | Whether obtaining the benefit was “one of the principal purposes” of an arrangement or transaction, “directly or indirectly”. |
In our reading, “one of the principal purposes” is a lower bar than “the main purpose”. On the exit, the text provides that the benefit is denied “unless it is established” that granting it would be in accordance with the object and purpose of the relevant provisions.
Who is affected?
Article 27B applies to “a benefit under this Convention”, and the Mauritius Cabinet described it as allowing either party to deny a benefit. In our reading, those most directly concerned are Mauritius residents claiming Convention benefits on Indian-source income, including funds and investment structures, and the Indian payers handling those claims.
From when does it apply?
Article 3(1) brings the Protocol into force on the date of the later of the two notifications, recorded as 10 August 2026. Article 3(2) gives it effect from that date “without regard to the date on which the taxes are levied or the taxable years to which the taxes relate”.
- 7 Mar 2024
Protocol signed
English and Hindi texts are equally authentic; English prevails if they diverge.
- 17 Jul 2026
Mauritius Cabinet agrees to ratify
Regulations made on 29 July 2026.
- 10 Aug 2026
Entry into force and effect
Later of the two notifications.
- 13 Oct 2026
Notified in India
Under section 159(1) of the Income-tax Act, 2025.
What should readers watch for?
Article 3(2) gives effect from 10 August 2026 whatever the taxable year; in our reading, that means the Protocol can bear on tax levied after that date on income of earlier years, which counsel may wish to confirm for a particular case. Guidance on the meaning of “arrangement”, the weight of the new preamble and the interaction with domestic law may follow.
These are our suggestions, not requirements of the notification.
- Anyone claiming a treaty benefit on income received on or after 10 August 2026 under an earlier arrangement may want to ask counsel how step 2 would be read.
- Records of the commercial reasons for an arrangement would be the natural material if the exit has to be shown.
Key facts
| Authority | Government of India, Ministry of Finance (Department of Revenue); Protocol agreed with the Government of the Republic of Mauritius |
|---|---|
| Instrument | Income-tax notification S.O. 5611(E) (F. No. 135/2026), giving effect to the Protocol amending the India-Mauritius Convention, under section 159(1) of the Income-tax Act, 2025 |
| Issue date | 13 October 2026 (New Delhi). Protocol signed at Port Louis on 7 March 2024 |
| Effective date | 10 August 2026, the date of entry into force of the Protocol (Article 3) |
| Applies to | Benefits under the India-Mauritius Convention signed in 1982, as amended in 2016 |
| Status | In force as a treaty since 10 August 2026; notified in India on 13 October 2026 |
| Official source | https://incometaxindia.gov.in/Pages/communications/notifications.aspx |
| Last verified | 15 October 2026. Based on the gazette text; notification page on the Income Tax Department site to be re-checked |
Frequently asked questions
What is the principal purpose test in the India-Mauritius Protocol?
Under Article 27B, a benefit under the Convention is not granted for an item of income if it is reasonable to conclude that obtaining it was one of the principal purposes of an arrangement or transaction that resulted in it, unless it is established that granting it accords with the object and purpose of the relevant provisions.
Why did India and Mauritius amend the treaty?
The new preamble states the aim: eliminating double taxation without opportunities for non-taxation or reduced taxation, including through treaty shopping. The Government of India linked the Protocol to BEPS Minimum Standards in March 2024.
From when does the Protocol apply?
Under Article 3(2), from the date of entry into force, which the notification gives as 10 August 2026, without regard to the date taxes are levied or the taxable years they relate to.
Does the Protocol change exchange of information or capital gains?
The Protocol has three Articles: the new preamble, Article 27B and the entry-into-force clause. Other Articles, including those on exchange of information and capital gains, are not amended.
Sources (official)
- Income Tax Department, Notifications https://incometaxindia.gov.in/Pages/communications/notifications.aspx
- Gazette of India, 13 October 2026 https://egazette.gov.in
- PIB, Ministry of Finance, 10 May 2016 https://www.pib.gov.in/newsite/PrintRelease.aspx?relid=145185®=48&lang=2
- PIB, 13 March 2024 https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2014333®=3&lang=2
- Mauritius Cabinet highlights, 17 July 2026 https://pmo.govmu.org/CabinetDecision/2026/Final_Highlights_of_Cabinet_Meeting_Friday_17.07.2026.pdf
- Mauritius Government Notice 136 of 2026 https://www.mra.mu/download/GN136_2026India.pdf
- OECD, Mauritius MLI notifications https://www.oecd.org/tax/treaties/beps-mli-position-mauritius-instrument-deposit.pdf
- India
- Mauritius
- Tax treaty
- Principal purpose test
- Treaty shopping
- Direct Taxation
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