The India-Mauritius DTAA Protocol has moved closer to implementation after Mauritius approved its ratification, offering investors greater clarity on the PPT rule and legacy investments. The move also seeks to reinforce Mauritius FDI links with India while tightening safeguards against treaty abuse.
PPT rule brings greater clarity to the tax treaty
Mauritius' Cabinet on July 17 approved ratification of the Protocol signed with India on March 7, 2024, which amends the longstanding Double Taxation Avoidance Agreement between the two countries.
The Protocol introduces a Principal Purpose Test, or PPT, designed to prevent investors from claiming treaty benefits when obtaining those benefits is one of the principal purposes of an arrangement. It also revises the treaty preamble to align the agreement with international standards against tax avoidance.
Mauritius Financial Services and Economic Planning Minister Jyoti Jeetun said the decision strengthens the strategic economic relationship by creating a more modern and transparent treaty framework while preserving legitimate cross-border investment.
Importantly, Cabinet approval is a major procedural step but does not mean the Protocol is already in force. The required formalities and notifications between India and Mauritius must still be completed.
DTAA clarity protects grandfathered investments
One of the biggest concerns following the 2024 Protocol involved whether the PPT could affect older investments retrospectively.
India's Central Board of Direct Taxes addressed that concern in Circular No. 1/2025. The guidance states that treaty PPT provisions apply prospectively and confirms that grandfathering provisions under the India-Mauritius treaty remain outside the scope of the PPT.
Shares acquired before April 1, 2017 already receive grandfathering protection under the earlier treaty amendment. India granted that protection when it moved toward source-based taxation of capital gains under the 2016 Protocol.
The clarification reduces a major source of uncertainty for investors with legacy holdings while allowing authorities to scrutinise newer structures that lack genuine commercial purpose.
Mauritius FDI model shifts toward economic substance
The changes also reinforce a broader shift in Mauritius' investment model. Treaty access alone will increasingly be insufficient; investors seeking treaty benefits will need credible commercial rationale and economic substance.
For Mauritius, that creates both a challenge and an opportunity. The jurisdiction built a major role as a gateway for investment into India, but international tax standards increasingly demand transparency and stronger safeguards against treaty shopping.
The new framework could help Mauritius compete on regulatory certainty, financial expertise and legitimate investment structures rather than primarily on tax advantages.
India-Mauritius investment ties could expand further
The relationship could now extend beyond traditional FDI structures into private equity, infrastructure, investment funds, fintech, sustainable finance and cooperation involving India's GIFT City.
Mauritius could also play a larger role in India's investment links with Africa. As an African Union, SADC and COMESA member with an established financial-services ecosystem, Mauritius is positioned to serve as a bridge for Indian businesses seeking opportunities across African markets.
The India-Mauritius tax relationship already has deep roots. The original convention entered into force in 1983 and has since undergone major revisions as international tax standards evolved.
The latest Protocol attempts to strike a difficult balance: protect legitimate investment while giving authorities stronger tools against abusive structures. If the remaining procedures are completed smoothly, greater certainty around grandfathering and prospective PPT application could help restore investor confidence while moving the India-Mauritius financial relationship toward a more substance-driven model.
