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The Income Tax department issued a guidance note on the application of the Principal Purpose Test (PPT) for claiming tax treaty benefits, which will apply from a future date (prospectively).
Grandfathering provisions in the India-Cyprus, India-Mauritius, and India-Singapore Double Tax Avoidance Agreements (DTAAs) will remain unaffected by the new PPT rules.
The grandfathering clauses in these treaties are not meant to interact with the PPT, ensuring that prior treaty-specific commitments are protected.
The clarification potentially clears the way for the updated protocol for the India-Mauritius treaty to be notified and come into effect from April 1, 2025.
The guidelines encourage tax authorities to refer to the OECD’s BEPS Action Plan 6 and the UN Model Tax Convention for additional guidance when applying the PPT provisions.
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