India and Mauritius closed another lacuna in their Double Taxation Avoidance Agreement (DTAA), tightening the scrutiny on tax avoidance on investments coming into India. The new protocol on DTAA was signed on the 7th of March this year. The latest amendment includes a Principal Purpose Test (PPT) to decide whether a foreign investor is actually eligible for treaty benefits, or was the tax benefit the primary reason to route investments via Mauritius.

DTAA is a bilateral agreement aimed at preventing double taxation of income earned in one country by residents of the other country (India & Mauritius in this case).