India and Mauritius sign new agreement to tackle tax avoidance

India and Mauritius have signed a protocol that will amend the convention enconmpassing the bilateral Double Taxation Avoidance Agreement. This aims to ensure that businesses utilise tax benefits only for legitimate reasons.

India and Mauritius have signed a new agreement that significantly reduces tax benefits for Mauritian investors in India. This aims to crack down on tax avoidance strategies. The two countries have signed a protocol to amend the convention encompassing the bilateral Double Taxation Avoidance Agreement (DTAA), as per a report by Financial Express.

Previously, investors from Mauritius could pay little to no capital gains tax in India. The new agreement requires a “principal purpose test” to ensure tax benefits are only used for legitimate reasons, not just to lower taxes.

This could lead to more scrutiny and potential legal disputes as investors need to prove their business purposes. India’s goal is to attract foreign investment directly, not through tax havens like Mauritius. In fact tax experts caution that the benefits of zero capital gains tax for investments made in Mauritius before April 1 2017 could also now come under the scanner.