After market sell-off, I-T Dept says treaty concerns premature

AFTER THE amended tax treaty between India and Mauritius was made public on Wednesday, the Income Tax Department said late Friday that the concerns and queries related to the revised treaty are premature since it is yet to be ratified and notified.

“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. As and when the Protocol comes into force, queries, if any, will be addressed, wherever necessary,” the department said in a post on social media platform, X, formerly known as Twitter.

The post by the Income Tax Department came on a day when there was a sell-off in stock markets, with FPIS offloading equities worth `8,027 crore on a net basis amid concerns over the US Fed’s stance on interest rate cuts and the concerns of greater scrutiny after the amended India-mauritius tax treaty.

In March, India signed an amendment to the tax treaty with Mauritius, the text of which was made public on Wednesday. The amended pact has included what is called the Principal Purpose Test (PPT), which essentially lays out the condition that the tax benefits under the treaty will not be applicable if it is established that obtaining that duty benefit was the principal purpose of any transaction or arrangement. This implies the treaty benefits, such as the reduction of withholding tax on interest royalties and dividends, will be denied where it is established that obtaining that treaty benefit is one of the principal purposes for the party engaged in the transaction.