India–Mauritius Investment Ties and DTAA Reforms
Prelims:
Indian Economy
Mains:
GS Paper II- Bilateral
Economic Cooperation, GS Paper III- Indian Economy
Current relevance:
Mauritius has reaffirmed that India remains an attractive destination for global investment, supported by its economic fundamentals, large market, reforms and digital transformation.
Highlights:
Mauritius as a Major Source
of FDI into India:
1.
Mauritius
has historically been an important source of Foreign Direct Investment (FDI)
into India.
2.
In 2025–26,
Mauritius contributed about $6.6 billion, accounting for 11.2% of
India's total FDI inflows, making it the second-largest source after
Singapore.
3.
Between
April 2000 and March 2026, Mauritius accounted for around $186
billion, nearly a quarter of India's total inward FDI during the period.
4.
India’s
large domestic market, economic reforms and rapid digital transformation
continue to support investor confidence.
India–Mauritius DTAA:
Evolution
1.
The
India–Mauritius DTAA was signed in 1982 and has played an important role
in facilitating bilateral investment flows.
2.
Concerns
subsequently emerged over investments being routed through shell companies
in Mauritius primarily to obtain tax benefits.
3.
The
2016 Protocol introduced source-based taxation of capital gains
on shares acquired on or after 1 April 2017, allowing India to impose
capital gains tax.
4.
Following
this change, Mauritius moved from being the leading FDI source to generally
being among India's second or third-largest sources of FDI.
Principal Purpose Test
(PPT):
1.
A
further amendment in 2024 introduced the Principal Purpose Test (PPT).
2.
Under
the PPT, if the principal purpose of establishing an entity or routing an
investment through Mauritius is to obtain tax benefits, India can refuse
those treaty benefits.
3.
The
amendment was signed in March 2024 and subsequently ratified by the
Mauritian Cabinet in July 2026 after concerns raised by investors were
addressed.
4.
However,
the amendment still requires notification by both India and Mauritius before
becoming effective.
Investment Facilitation vs
Tax Integrity:
1.
Investment
certainty: A
predictable tax-treaty framework can strengthen confidence among genuine
long-term investors.
2.
Prevention
of treaty abuse: PPT
helps address the misuse of tax treaties through structures established
primarily for obtaining tax advantages.
3.
Quality
of FDI: The amended
framework seeks to facilitate genuine and constructive investment flows
from Mauritius.
4.
India–Mauritius
economic partnership:
The DTAA has remained an important component of bilateral economic relations
for several decades.
5.
Policy
challenge: India needs
to maintain a balance between attracting global capital and protecting its
legitimate taxation rights.
Source: THE HINDU - https://www.pressreader.com/india/the-hindu-erode-9ww6/20260823/281883010186122?srsltid=AfmBOoqH-BYzxIX_9l94EhxP5ogELdWpwmLoj3_yu0g5ZkUA8z6ZLiyG