Mauritius Treaty Relief Needs an Income-Specific Defence

A Mauritius investment should no longer be reviewed through a single question about when the shares were acquired. The October 2026 notification introducing the principal purpose test requires a more precise exercise: identify the income, locate the treaty benefit, establish the relevant dates, and test the particular ground on which relief might be denied. A protected capital gain and a dividend from the same investment can require different advice.

For boards, fund managers and transaction advisers, the immediate priority is an evidence file that explains the structure before a payment, exit or withholding decision occurs. The principal purpose test does not automatically cancel treaty relief. Nor does grandfathering dispense with every condition of entitlement. Those propositions are the starting point for a defensible position.

01What the October notification changes

Notification No. 135/2026, S.O. 5611(E), dated 13 October 2026, notifies the protocol signed on 7 March 2024 under section 159(1) of the Income-tax Act, 2025. The notification records entry into force on 10 August 2026. The protocol replaces the preamble and adds Article 27B, an entitlement-to-benefits provision. Notification date and treaty commencement must therefore be recorded separately.¹

Article 27B addresses an item of income where obtaining a treaty benefit was one of the principal purposes of an arrangement or transaction. It requires a reasonable conclusion based on all relevant circumstances and retains an exception where granting the benefit accords with the object and purpose of the relevant treaty provisions. A tax advantage need not be the sole purpose; equally, its existence does not dispense with the factual inquiry.

The new preamble identifies avoidance and treaty shopping as concerns. It informs interpretation, but is not a substitute for identifying an operative rule that denies relief. A notice should connect the alleged abuse to the income and benefit in question rather than rely on the general undesirability of conduit structures.

02Commencement is not the same as the assessment date

Article 3(2) gives the protocol effect from entry into force without tying application to the date tax is levied or the taxable year. CBDT Circular No. 01/2025 separately states that a bilaterally introduced PPT is intended to operate prospectively from the relevant instrument’s entry into force. The two instruments must be read together; an assessment completed after August does not, for that reason alone, bring every earlier receipt within Article 27B.²

The stronger prospective reading tests the income-producing event against commencement. A pre-existing structure may still generate a later benefit requiring review. Conversely, the mere age of the arrangement cannot determine whether a particular item of income falls within the temporal reach of the amendment. Transfers, accruals and payments should be mapped individually, especially where they straddle commencement.

The wording has already generated competing readings about earlier years. A professional opinion should state its interpretation and reasons, rather than describe every temporal question as settled. Where consideration is deferred or contingent, the analysis must also distinguish transfer, accrual and receipt under the applicable charging provisions. A simple comparison of bank-credit dates is inadequate.

03Grandfathering protects a defined benefit

The 2016 changes introduced source-State taxation for gains from shares acquired on or after 1 April 2017 under Article 13(3A). The treaty treatment of earlier acquisitions under Article 13(4) is the foundation of the familiar grandfathering position. The asset sold, the entity whose shares are sold, and the acquisition evidence matter; the shorthand “pre-2017 investment” is insufficient for every structure.³

Part B of Circular No. 01/2025 expressly preserves the specified treaty grandfathering commitments outside the PPT, leaving them governed by their treaty provisions. That is substantial support for a qualifying claim. It does not convert every receipt of a longstanding Mauritius company into a grandfathered capital gain, or settle whether that company qualifies for the treaty in the first place.⁴

Separate dividend and interest streams therefore need separate analysis. A shareholder cannot carry the acquisition-date protection across to a different income article merely because the underlying holding is unchanged. The same caution applies to derivatives: characterisation, domestic charge and the treaty article must be established before considering whether a claimed benefit survives Article 27B.

A protected capital gain and a dividend from the same investment can require different advice.

04Domestic GAAR protection is a separate inquiry

Notifications Nos. 54/2026 and 55/2026 amended the domestic GAAR rules on 31 March 2026. They expressly protect income from transfers of investments made before 1 April 2017 in the terms prescribed, including within the rule dealing with arrangements irrespective of their date. The old-law amendment took effect on publication; the new-law amendment took effect on 1 April 2026.⁵

TLC summary of the instruments cited in notes 1 and 5. The table is not a substitute for their text.

The statutory and treaty tests are distinct. A domestic GAAR exclusion does not itself confer treaty residence, establish beneficial ownership where required, or rewrite Article 13. Equally, a treaty grandfathering argument does not determine every domestic charging issue. An opinion should identify the legal gateway for each proposed denial rather than place all anti-abuse questions under a single heading.

05Tiger Global prevents reliance on certificates alone

The Supreme Court’s January 2026 decision in Tiger Global concerned transfers of shares in a Singapore company by Mauritius entities and the advance-ruling threshold for a transaction prima facie designed for avoidance. The Court rejected the Delhi High Court’s approach, examined residence and effective control, and treated a tax residence certificate as insufficient by itself to conclude entitlement. Its analysis of indirect holdings cannot be replaced by an assumption that every offshore share sale enjoys the same protection as a direct holding in an Indian company.⁶

Two limits are essential. Tiger Global preceded the March 2026 amendments to the domestic grandfathering rules and the October notification of this protocol. It did not adjudicate the new Article 27B. The later amendments must be considered on their own terms, but they do not justify announcing that every aspect of the judgment has disappeared. Residence, transaction scope and statutory safeguards remain separate matters.

06The purpose file should answer the actual challenge

The first limb of Article 27B calls for an objectively reasonable conclusion from the circumstances. Its exception then requires support for granting the particular benefit consistently with the relevant provisions. These are distinct stages. However, the text should not be converted into an assurance that the taxpayer bears no evidentiary responsibility until a formal allegation arrives. Information concerning investment purpose and management is usually held by the investor.

The file should contain acquisition records, ownership changes, contemporaneous investment memoranda, evidence of decision-making authority, board papers, financing arrangements, management agreements and the commercial explanation for using the entity. Advisers should test whether actual conduct matches the allocation of responsibility in those documents. Minutes drafted to record genuine deliberation are useful; formulaic assertions of substance do not prove who made the decision.

The evidence should also explain changes. A restructuring shortly before an exit or distribution may require a different account from the original establishment of a fund. The question is not simply why Mauritius was selected many years ago, but how the relevant arrangement produced the specific benefit now claimed. Retrospective statements should be identified as such and supported by records rather than presented as contemporaneous reasons.

07Translate the analysis into transaction documents

A purchaser assessing withholding should obtain an income-specific entitlement analysis and identify the consequences if the Revenue disputes it. Tax covenants should allocate responsibility for supplying records, responding to notices, controlling disputes and bearing additional tax, interest or associated costs. The allocation must fit the parties and applicable law; an indemnity does not bind the tax authority or cure an incorrect withholding position.

Consider a Mauritius vehicle that acquired Indian-company shares in 2015 and receives both exit proceeds and a dividend after commencement. The capital-gains position may have substantial grandfathering support. The dividend requires its own treaty analysis. If the vehicle instead sells foreign-company shares deriving value from India, domestic indirect-transfer rules and Tiger Global demand separate attention. One memorandum should not assign the same answer to all three receipts.

The practical effect of the new protocol is greater precision in claiming relief. Investors should retain qualifying grandfathering arguments, identify income outside their scope, and assemble evidence before implementation of an exit or payment. A sound defence starts with the correct benefit and period. It succeeds through the applicable treaty and domestic rules, supported by what the investment actually did.

This insight reflects the law as at 16 October 2026.

About the authorSumit KumarFounder, The Lord’s Consultancy · Corporate, Taxation & Regulatory Lawyer

Advises on direct tax, indirect tax and corporate law, and appears before Appellate Tribunals, the High Courts and the Supreme Court.