Key Takeaways on India-Mauritius DTAA 2026
- The India-Mauritius DTAA was signed in 1982 (in force from 1983) and was historically the most favoured route for foreign portfolio investment (FPI) into India due to zero capital gains tax on Indian shares.
- The 2016 Protocol fundamentally changed the treaty by giving India source-based taxation rights on capital gains arising from shares acquired on or after 1 April 2017.
- Pre-2017 investments are grandfathered: Shares acquired before 1 April 2017 remain exempt from capital gains tax in India.
- From 1 April 2019 onwards, Mauritius companies selling Indian shares acquired after 31 March 2017 pay capital gains tax at full domestic Indian rates (for transfers from 23 July 2024: 12.5% LTCG above Rs 1.25 lakh / 20% STCG on listed shares).
- The 2024 Protocol, signed on 7 March 2024, introduces the Principal Purpose Test (PPT), an anti-abuse provision aligned with BEPS standards. It applies in India only once it enters into force and is notified; check its current status.
- Dividend withholding tax is 5% if the Mauritius company holds 10%+ of capital; otherwise 15%. Interest is taxable in India at up to 7.5% (exempt for Mauritian banks on debt claims made on or before 31 March 2017).
- Substance matters: during 2017 to 2019, companies spending less than MUR 1.5 million (about ₹27 lakh) in Mauritius were treated as shells and denied the 50% transitional rate. Today substance matters for GAAR and, once in force, the PPT.
The India-Mauritius Double Taxation Avoidance Agreement (DTAA) has been the most significant tax treaty in India's history. For nearly three decades, it was the preferred corridor for foreign capital flowing into India and helped establish Mauritius as an international financial centre. However, the treaty has undergone fundamental changes since 2016, and the landscape today is very different from what it was a decade ago.
This guide provides a comprehensive overview of the India-Mauritius DTAA in 2026, covering the key amendments, current tax treatment of capital gains, dividends, interest, the Principal Purpose Test, and what it means for FPIs, NRIs, and businesses.
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1. Overview of the India-Mauritius DTAA
The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius was originally signed on 24 August 1982 and entered into force on 16 December 1983.
The Golden Era (1983-2016)
Under the original treaty, capital gains arising from the sale of shares of an Indian company were taxable only in Mauritius (residence-based taxation). Since Mauritius did not levy capital gains tax, the effective tax rate on gains from selling Indian shares through a Mauritius entity was zero.
This made Mauritius the preferred jurisdiction for FPI into India, and for two decades the "Mauritius route" dominated foreign investment flows into the country.
2. The 2016 Protocol: The Game Changer
On 10 May 2016, India and Mauritius signed a protocol amending the treaty. The protocol entered into force on 19 July 2016 and was notified in India in August 2016.
What Changed?
The 2016 Protocol fundamentally shifted the treaty from residence-based to source-based taxation for capital gains.
| Aspect | Pre-2016 Protocol | Post-2016 Protocol |
|---|---|---|
| Taxation of Capital Gains | Taxable only in Mauritius (effectively zero tax) | India has the right to tax capital gains |
| Applicability | All investments | Only shares acquired on or after 1 April 2017 |
| Grandfathering | Not applicable | Investments made before 1 April 2017 are protected |
Transition Period and Full Taxation
The 2016 Protocol provided a phased transition:
| Period | Tax Treatment |
|---|---|
| Before 1 April 2017 | Full exemption (grandfathered investments) |
| 1 April 2017 to 31 March 2019 | Tax limited to 50% of India's domestic capital gains tax rate |
| From 1 April 2019 onwards | Tax at 100% of India's domestic capital gains tax rate |
Limitation of Benefits (LOB)
The benefit of the 50% reduced rate during the transition period was subject to a Limitation of Benefits (LOB) clause:
- A Mauritius resident (including a shell/conduit company) would not be entitled to the 50% rate reduction if it failed the main purpose test and bona fide business test
- A resident was deemed a shell/conduit company if its total expenditure on operations in Mauritius was less than MUR 1,500,000 (approximately ₹2,700,000) in the immediately preceding 12 months
3. Current Tax Treatment for Mauritius-Based Investors (2026)
Capital Gains on Indian Shares
For shares acquired on or after 1 April 2017, the following rates apply:
| Holding Period | Tax Rate (transfers from 23 July 2024) |
|---|---|
| Long-Term Capital Gains (LTCG), listed shares held >12 months (Section 112A) | 12.5% on gains above Rs 1.25 lakh, without indexation |
| Short-Term Capital Gains (STCG), listed shares held ≤12 months (Section 111A) | 20% |
| Unlisted shares | LTCG after 24 months at 12.5%; STCG at the rates applicable to a foreign company |
Surcharge and 4% cess apply on top. Full domestic rates have applied since 1 April 2019; the rates themselves changed on 23 July 2024.
Grandfathering Protection
Shares acquired before 1 April 2017 are grandfathered and will not be subject to capital gains tax in India under the treaty, even if transferred after that date. Under Rule 10U of the Income-tax Rules, 1962, GAAR does not apply to income from transfer of investments made before 1 April 2017.
Dividends
Under Article 10 of the DTAA, withholding tax on dividends is:
| Shareholding | Withholding Tax Rate |
|---|---|
| 10% or more of the capital of the company paying dividends | 5% |
| Less than 10% of the capital | 15% |
Interest
Under Article 11 of the DTAA:
| Interest | Tax in India |
|---|---|
| Interest arising in India to a Mauritius resident beneficial owner | Up to 7.5% |
| Interest to a Mauritian bank carrying on bona fide banking business, on debt claims or loans made on or before 31 March 2017 | Exempt in India |
Royalties and Fees for Technical Services
Under Article 12 of the DTAA, royalties are taxable in India at up to 15%. The 2016 Protocol added a separate article for fees for technical services, taxable in India at up to 10%. Both rates are lower than the 20% domestic rate for non-residents under Section 115A.
4. The 2024 Protocol and the Principal Purpose Test (PPT)
What is the 2024 Protocol?
On 7 March 2024, India and Mauritius signed a new protocol further amending the DTAA. The key change was the introduction of the Principal Purpose Test (PPT), aligning the treaty with the OECD Base Erosion and Profit Shifting (BEPS) minimum standards.
Status
A protocol takes effect only after both countries complete their ratification procedures and India notifies it. Media reports in 2026 indicated progress on ratification in Mauritius, but check whether CBDT has notified the 2024 Protocol before relying on it either way.
What is the Principal Purpose Test?
The Principal Purpose Test is an anti-abuse rule that allows tax authorities to deny treaty benefits if obtaining the tax benefit was one of the principal purposes of the transaction or arrangement.
Key Points:
- The PPT applies prospectively - it does not disturb the grandfathering of investments made before 1 April 2017
- It aligns with international BEPS standards and is aimed primarily at treaty shopping
- Genuine investors with real economic activity and substance in Mauritius should not be concerned
Substance Requirements
The PPT places a greater emphasis on substance in Mauritius:
- Mauritius companies need genuine economic substance: local directors, employees, board meetings, and operational expenditure in Mauritius
- Shell companies with no substance risk being denied treaty benefits
PPT vs GAAR
Experts note that the PPT does not create a new anti-abuse power but provides a treaty-based mechanism to tackle treaty shopping alongside the existing General Anti-Avoidance Rules (GAAR)
| Aspect | GAAR | PPT |
|---|---|---|
| Legal Basis | Domestic law | Treaty |
| Scope | All arrangements | Treaty benefits only |
| Approval | Approving Panel required | Tax officer can determine |
| Appeal | Available | Available |
5. Treaty Shopping Concerns
Treaty shopping - using a third country's tax treaty to obtain benefits not available directly - was a major concern with the Mauritius route. The 2016 Protocol and the 2024 Protocol were both designed to address this.
CBDT's Position
The CBDT has issued circulars and AARs warning against using Mauritius as a conduit for treaty shopping. Key concerns include:
- Substance requirements: Mauritius companies seeking treaty protection must demonstrate genuine economic activity
- Limitation of Benefits (LOB): The LOB article in the 2016 Protocol imposes conditions on claiming treaty benefits
- Shell companies: During the 2017 to 2019 transition, companies with operational expenditure in Mauritius below MUR 1.5 million were deemed shell companies and denied the 50% rate
Impact of the 2016 Protocol on FDI Flows
The impact of the 2016 Protocol was significant. FDI inflows from Mauritius dropped from USD 15.72 billion in 2016-17 to USD 6.13 billion in 2022-23, with Mauritius becoming India's third largest source of FDI.
6. FPI and Fund Structures
Can Mauritius Still Work for FPIs?
Yes, but the rules have changed. As one expert commentary puts it: "Mauritius can still work for FPI, fund, and holding structures, but it needs commercial purpose, substance, and proper tax review."
Key Considerations for FPIs
- Substance: Mauritius entities need real economic activity
- Tax planning: The Mauritius route is no longer about simple tax arbitrage
- PPT compliance: Genuine investors with real economic activities should not be concerned
7. NRIs and Mauritius Structures
Can NRIs Benefit from the Mauritius Treaty?
Indian residents cannot directly benefit from the India-Mauritius DTAA because they are taxed in India on their global income.
NRIs Setting Up Mauritius Companies
- The Mauritius company is a resident of Mauritius; the treaty applies to the company
- Place of Effective Management (POEM): If an India-based NRI effectively manages the Mauritius company from India, POEM may be India, making the company an Indian resident
- The company must have substance in Mauritius
8. How to Claim DTAA Benefits as a Mauritius Investor
To claim benefits under the India-Mauritius DTAA, the following steps are required:
1. Obtain Tax Residency Certificate (TRC)
- Issue of Tax Residency Certificate (TRC) from the Mauritius Revenue Authority is a primary requirement
- This document constitutes definitive proof of Mauritian tax residency to claim DTAA benefits
2. File Form 10F
- File Form 10F with the Indian income tax department
- Provide declaration that DTAA conditions are satisfied
3. Demonstrate Substance
- Ensure minimum substance in Mauritius
- Maintain proper documentation of operations, directors, employees, and board meetings in Mauritius
9. Key Takeaways
| Aspect | Details |
|---|---|
| Treaty Signed | 24 August 1982; entered into force 16 December 1983 |
| 2016 Protocol | Signed 10 May 2016; gave India source-based taxation rights |
| Grandfathering | Shares acquired before 1 April 2017 are exempt |
| Transition Period | 1 April 2017 – 31 March 2019: 50% of domestic rate |
| Full Taxation | From 1 April 2019: 100% of domestic rate |
| LTCG Rate (post-2017 shares) | 12.5% (no indexation) |
| STCG Rate (post-2017 shares) | 20% |
| Dividend WHT | 5% (≥10% holding) / 15% (others) |
| Interest | Up to 7.5%; exempt for Mauritian banks on pre-April 2017 debt claims |
| 2024 Protocol | Signed 7 March 2024; introduces PPT; applies once notified in India |
| Substance Threshold (2017 to 2019 LOB) | MUR 1.5 million (≈₹27 lakh) expenditure in Mauritius |
10. Where Tax Garden Helps
The India-Mauritius DTAA has undergone significant changes since 2016. Understanding the current tax treatment of capital gains, dividends, interest, and the implications of the PPT and substance requirements is essential for FPIs, fund managers, and businesses using Mauritius structures.
Tax Garden's international tax experts help you:
- Determine the correct tax treatment of capital gains under the DTAA
- Understand grandfathering protection for pre-2017 investments
- Navigate the Principal Purpose Test and substance requirements
- Claim treaty benefits through TRC and Form 10F
- Structure Mauritius investments to ensure compliance with Indian tax laws
- Respond to tax notices and assessments
Looking for expert help with India Mauritius DTAA 2026, India Mauritius tax treaty capital gains, Mauritius route capital gains India shares, FPI Mauritius registered tax India 2026, India Mauritius double taxation avoidance agreement? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
DTAA India-Mauritius: Frequently Asked Questions
What is the capital gains tax on Indian shares held through a Mauritius company in 2026?
For listed equity shares acquired on or after 1 April 2017 and sold now, long-term gains (held more than 12 months) are taxed in India at 12.5% above the Rs 1.25 lakh exemption, and short-term gains at 20%, plus surcharge and cess. Unlisted shares have a 24-month holding period. Shares acquired before 1 April 2017 are grandfathered and not taxed in India.
What is the withholding tax rate on dividends under the India-Mauritius DTAA?
Dividends are taxed at 5% if the Mauritius company holds 10% or more of the capital of the Indian company paying dividends, and 15% in all other cases.
What is the withholding tax rate on interest under the India-Mauritius DTAA?
Under Article 11 as amended by the 2016 Protocol, interest arising in India to a Mauritius resident beneficial owner is taxable in India at up to 7.5%. Interest paid to a Mauritian bank on debt claims or loans made on or before 31 March 2017 continues to be exempt in India.
What is the Principal Purpose Test (PPT) in the India-Mauritius DTAA?
The PPT is an anti-abuse rule introduced by the 2024 Protocol that allows tax authorities to deny treaty benefits if obtaining the tax benefit was one of the principal purposes of the transaction. It is aligned with OECD BEPS standards, applies prospectively, and takes effect in India only once the protocol is notified.
What is the significance of the 2016 Protocol?
The 2016 Protocol fundamentally changed the India-Mauritius DTAA by giving India source-based taxation rights on capital gains from shares acquired on or after 1 April 2017. Previously, capital gains were taxable only in Mauritius (effectively zero tax).
What is the substance requirement for Mauritius companies claiming treaty benefits?
Under the 2016 Protocol, a Mauritius company that spent less than MUR 1.5 million (about Rs 27 lakh) on operations in Mauritius in the preceding 12 months was treated as a shell and denied the 50% transitional rate. That test lapsed with the transition in March 2019. Today, local directors, board meetings, staff and real spending in Mauritius matter mainly for the PPT and GAAR.
Can NRIs benefit from the India-Mauritius DTAA?
Indian residents cannot directly benefit from the DTAA as they are taxed on their global income in India. NRIs setting up Mauritius companies must ensure the company has substance in Mauritius and complies with POEM (Place of Effective Management) rules.
What documents are required to claim DTAA benefits?
To claim DTAA benefits, a Mauritius investor needs a Tax Residency Certificate (TRC) from the Mauritius Revenue Authority and must file Form 10F with the Indian income tax department, along with a declaration that DTAA conditions are satisfied.
Sources: India-Mauritius DTAA and 2016 Protocol (CBDT notification, August 2016); Income-tax Rules, 1962, Rule 10U; Finance (No. 2) Act, 2024 (capital gains rates); 2024 Protocol text as signed on 7 March 2024. Verify current rates, conditions, and procedures on incometaxindia.gov.in before acting, as rules may be updated periodically. This article is general information on the India-Mauritius DTAA and not a substitute for professional advice.
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