ECONOMY
CBDT’s new rules exempt DTAA treaties prior to April 2017 from PPT scrutiny
- IBJ Bureau
- Jan 23, 2025
The Central Board of Direct Taxes (CBDT) has clarified that investments made under treaties with Mauritius, Singapore and Cyprus will not face retrospective scrutiny under newly-implemented Principal Purpose Test (PPT), offering relief to investors.
In a circular released on Wednesday, the CBDT has said that grandfathering provisions under these treaties will remain outside the scope of PPT. These provisions will continue to be governed by the specific clauses outlined in respective Double Taxation Avoidance Agreements (DTAAs).
A PPT, introduced to prevent treaty abuse, checks if a business arrangement is primarily designed to save taxes. If so, treaty benefits can be denied. The rule is a part of the Base Erosion and Profit Shifting (BEPS) framework, implemented in India from October 1, 2019.
The CBDT has emphasised that investments made before April 1, 2017, under older agreements with Mauritius, Singapore and Cyprus will not face retrospective application of PPT.
“These commitments are not intended to interact with the PPT provision,” the CBDT has clarified. For treaties amended through bilateral agreements – such as those with Iran, Hong Kong, Chile and China – PPT will apply from the date the amendments come into effect.
Experts have welcomed the clarification, noting that it resolves ambiguity around the India-Mauritius treaty and ensures smoother implementation of tax treaty provisions.
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