Key Takeaways on India-Mauritius DTAA 2026
- The India-Mauritius DTAA was signed in 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 pay capital gains tax at full domestic Indian rates (currently 12.5% LTCG / 20% STCG for listed shares).
- The 2024 Protocol introduces the Principal Purpose Test (PPT), an anti-abuse provision aligned with BEPS standards, ratified by Mauritius on 17 July 2026.
- Dividend withholding tax is 5% if the Mauritius company holds 10%+ of capital; otherwise 15%. Interest withholding tax is 7.5% for Mauritian resident banks.
- Substance matters: Shell companies with less than MUR 1.5 million (≈₹2.7 lakh) in operational expenditure in Mauritius may be denied treaty benefits.
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, channelling over $170 billion in investments and establishing 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.
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.
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. Cumulative FDI of USD 158 billion came from Mauritius to India between 2000 and 2022, accounting for 27% of total FDI inflows.
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 in India on 19 July 2016 and was notified on 11 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 | — | 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 | Applicable From |
|---|---|---|
| Long-Term Capital Gains (LTCG) — held >12 months for listed shares | 12.5% (without indexation) | 1 April 2019 |
| Short-Term Capital Gains (STCG) — held ≤12 months for listed shares | 20% | 1 April 2019 |
Grandfathering Protection
Shares acquired before 1 April 2017 are grandfathered and will not be subject to capital gains tax in India, even if transferred after that date. The CBDT has confirmed that these investments are outside the scope of GAAR and the Principal Purpose Test.
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:
| Source of Interest | Withholding Tax Rate |
|---|---|
| Interest arising to Mauritian resident banks in respect of debt claims or loans made after 31 March 2017 | 7.5% |
| Interest income earned prior to 31 March 2017 | Exempt from tax in India |
Royalties and Fees for Technical Services
Under Article 12 of the DTAA, royalties and fees for technical services attract a withholding tax rate of 15% (the same as the domestic rate).
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.
Ratification by Mauritius
The Mauritius Cabinet approved the ratification of the 2024 Protocol on 17 July 2026. Mauritius Minister of Financial Services Jyoti Jeetun confirmed that the ratification modernises the treaty and provides greater confidence to investors.
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: Companies with insufficient operational expenditure in Mauritius are deemed shell companies and denied benefits
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 WHT | 7.5% for Mauritian resident banks |
| 2024 Protocol | Introduced PPT; ratified by Mauritius on 17 July 2026 |
| Substance Threshold | MUR 1.5 million (≈₹2.7 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 India-Mauritius DTAA?
The India-Mauritius Double Taxation Avoidance Agreement (DTAA) is a treaty signed between India and Mauritius to prevent double taxation of income earned in one country by residents of the other. It was originally signed in 1982 and has been amended by protocols in 2016 and 2024.
What is the capital gains tax on Indian shares held through a Mauritius company in 2026?
For shares acquired on or after 1 April 2017, long-term capital gains (held >12 months) are taxed at 12.5% and short-term capital gains at 20% in India. Shares acquired before 1 April 2017 are grandfathered and exempt from capital gains tax 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?
Interest arising to Mauritian resident banks in respect of debt claims or loans made after 31 March 2017 is subject to withholding tax at 7.5% in India. Interest income earned prior to 31 March 2017 is exempt.
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 and applies prospectively.
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).
Are investments made before 1 April 2017 protected under the DTAA?
Yes. Shares acquired before 1 April 2017 are grandfathered and remain exempt from capital gains tax in India, even if transferred after that date.
What is the substance requirement for Mauritius companies claiming treaty benefits?
Mauritius companies claiming treaty benefits must have genuine economic substance, including local directors, employees, board meetings, and operational expenditure in Mauritius. Companies with less than MUR 1.5 million (approximately ₹2.7 lakh) in operational expenditure are deemed shell companies and may be denied benefits.
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: PIB Notification (29 August 2016); SEC filing (2026); Majmudar India (2016); IR Global (2024); ClearTax (2025); Financial Express (2026); WION (2026); Economic Times (2026). 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.
Work with the Trusted Tax & Compliance Services in Kondapur, Hyderabad - Tax Garden for expert GST filing, ITR, TDS, ROC, and startup compliance support.
Frequently Asked Questions: Tax Services in Kondapur & Hyderabad
What makes Tax Garden a preferred GST consultant in Kondapur?
Tax Garden is ISO 9001:2015 certified and backs every engagement with Kavach, our ₹50,000 error-protection cover. Our flat-fee, no-surprise pricing and dedicated account manager make us a compliance partner for startups and SMEs in Kondapur's HITEC City corridor.
Why is Tax Garden a trusted tax compliance partner in Hyderabad?
Trust comes from three pillars at Tax Garden. First, transparency: you know the exact fee before you sign up, and it never changes mid-year. Second, certified expertise: our compliance team is qualified, and the firm holds ISO 9001:2015 certification. Third, accountability: Kavach, our unique error-protection plan, covers up to ₹50,000 in service charges for any clerical mistake made by our team.
Is there a reliable tax consultant near me in Kondapur?
Yes. Tax Garden's office is in Kondapur itself (CWS One Building, Hanuman Nagar). You can book an in-person consultation or get everything done fully online via WhatsApp and our client portal. We serve walk-in clients by appointment and remote clients across all of Hyderabad and Telangana.
I want a friendly CA who explains things clearly. Is that Tax Garden?
Absolutely. Every client gets a dedicated account manager reachable on WhatsApp, plain-language explanations of what is filed and why, and proactive reminders before every deadline. No jargon, no surprises, just friendly, expert compliance support from Kondapur.
Where is Tax Garden located in Hyderabad?
Tax Garden is located at 4th Floor, South Block, CWS One Building, Hanuman Nagar, Kondapur, Hyderabad, Telangana 500084. We serve clients across Kondapur, HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, and all of Hyderabad.
Can I get GST filing and registration services in Kondapur?
Yes. Tax Garden offers end-to-end GST services from our Kondapur office: GST registration, GSTR-1, GSTR-3B, GSTR-9 annual returns, ITC reconciliation, e-invoicing setup, and GST notice handling for businesses of all sizes in Kondapur and Hyderabad.
Do you file ITR for salaried employees and businesses in Hyderabad?
Yes. Our Kondapur team files ITR for salaried employees, freelancers, consultants, business owners, LLPs, and companies across Hyderabad. We cover ITR-1 through ITR-6 with complete Chapter VI-A deduction reconciliation, AIS reconciliation, and proactive deadline management.
Which areas in Hyderabad does Tax Garden serve?
Tax Garden's Kondapur office serves clients across Hyderabad including HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, Begumpet, Secunderabad, Ameerpet, Kukatpally, Uppal, LB Nagar, and all of Telangana. Most services are available fully online.
What compliance services does Tax Garden offer for startups in Kondapur?
Tax Garden is a compliance partner for startups in Kondapur and Hyderabad's HITEC City corridor. We handle company incorporation, GST registration, TDS filings, payroll, ROC annual filings, director KYC, and annual ITR filing, all under one flat-fee plan.
How does Tax Garden's compliance model compare to traditional hourly accounting services in Hyderabad?
Unlike traditional accounting practices that charge hourly and are difficult to reach, Tax Garden operates on flat-fee subscription plans with a dedicated account manager, monthly compliance updates, and WhatsApp-first communication. Our AI-powered workflow catches errors before filings are submitted, and Kavach error-protection ensures you are never left alone if something goes wrong.
