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The clarification follows concerns by tax experts over the agreement opening past investments to scrutiny from tax authorities at the time of exit following the protocol, which was inked on March 7. A key concern expressed by experts is about reopening of past cases in view of the amended provision.

“Some concerns have been raised on the India Mauritius DTAA amended recently. In this context, it is clarified that the concerns /queries are premature at the moment since the Protocol is yet to be ratified and notified u/s 90 of the Income-tax Act, 1961,” the Central Board of Direct Taxes said on ‘X.

The tax department can now question investments made via Mauritius where the main purpose of the investment is to obtain treaty benefit.

This limitation on third-party countries will be a concern, along with the new requirement to demonstrate that tax relief is not one of the principal purposes of the investment, said experts.

Foreign investors entering India via Mauritius are set to face greater scrutiny of their investments, with the two countries inking a protocol to amend their double-taxation avoidance agreement.

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