India-Mauritius tax treaty likely to not have retrospective taxation effect

A treaty between India and Mauritius is not likely to have retrospective taxation effect as tax will be imposed only after the date of the signing of the agreement between the two, news channel CNBC-TV18 reported on April 12, citing sources.

It was understood that new provisions with respect to India-Mauritius treaty will apply to even past investments where the taxable event occurs post coming into effect of the protocol. However, CNBC-TV18 reported that it is not retrospective as taxability is only post the date of the treaty coming into effect even where the investments have been made at an earlier date.

The channel also reported that India will inform Mauritius and notify the protocol to make it applicable.

India and Mauritius have signed a protocol to amend the double taxation avoidance agreement (DTAA), which included a principal purpose test (PPT) to decide whether a foreign investor is eligible to claim treaty benefits.

Tax experts said a new article has been added to the protocol "Article 27B Entitlement to Benefits". The amended protocol was signed on March 7 and made public on April 10.

The introduction of the PPT aims to curtail tax avoidance by ensuring that treaty benefits are only granted for transactions with a bona fide purpose.

Investment into India by Foreign Portfolio Investors (FPIs) from Mauritius stood at Rs 4.19 lakh crore ($50.20 billion), about 6% of total the FPI investments as of March 2024, according to data from the National Securities Deposit.

India and Mauritius entered into the Double Taxation Avoidance Agreement in 1982 so non-residents investors can avoid paying double taxes. The amended treaty aims to curb tax evasion and avoidance.